TITLE

Dividend Policy, Shareholder Rights, and Corporate Governance

AUTHOR(S)

Jiraporn, Pornsit; Yixi Ning

PUB. DATE

September 2006

SOURCE

Journal of Applied Finance;Fall/Winter2006, Vol. 16 Issue 2, p24

SOURCE TYPE

Academic Journal

DOC. TYPE

Article

ABSTRACT

This study explores agency costs as a determinant of dividend policy. We examine how dividends are related to the strength of shareholder rights. The evidence reveals an inverse association between dividend payouts and shareholder rights, i.e. firms pay higher dividends when shareholder rights are more suppressed. This evidence is consistent with the substitution hypothesis (La Porta, Lopez-De Salinas, Shleifter, Vishney, 2000), which contends that firms with weak shareholder rights need to establish a reputation for not exploiting shareholders. As a result, these firms pay dividends more generously than do firms with strong shareholder rights. In other words, dividends substitute for shareholder rights. Further, there is some evidence that regulation influences the association between dividends and shareholder right.

ACCESSION #

25301695

Tags: FINANCE -- Research;  AGENCY costs;  STOCKHOLDERS' pre-emptive rights;  DIVIDENDS;  CORPORATE governance;  STOCKHOLDERS;  CORPORATIONS -- Finance

 

Related Articles

• Agency Costs of Free Cash Flow and the Effect of Shareholder Rights on the Implied Cost of Equity Capital. Chen, Kevin C. W.; Chen, Zhihong; Wei, K. C. John // Journal of Financial & Quantitative Analysis;02/01/2011, Vol. 46 Issue 1, p171 

  In this paper, we examine the effect of shareholder rights on reducing the cost of equity and the impact of agency problems from free cash flow (FCF) on this effect. We find that firms with strong shareholder rights have a significantly lower implied cost of equity after controlling for risk...

• Subverting Shareholder Rights: Lessons from News Corp.'s Migration to Delaware. Hill, Jennifer G. // Vanderbilt Law Review;Jan2010, Vol. 63 Issue 1, p1 

  This Article critically analyzes News Corp.'s reincorporation in Delaware against the backdrop of two major contemporary corporate governance debates relating to shareholder empowerment and convergence theory. Legal scholars opposing greater shareholder power often argue that the lack of...

• Infoline.  // NACD Directorship;Jul/Aug99, Vol. 25 Issue 7, p18 

  Presents news briefs on directorship-related issues worldwide as of July/August 1999. Update on shareholder rights plans; Shareholder voting guidelines from Great Britain; Rating of companies listed on major exchanges in Europe according to corporate governance standards.

• Factors Affecting the Value of the Stock Voting Right: Evidence from the Swiss Equity Market. Kunz, Roger M.; Angel, James J. // FM: The Journal of the Financial Management Association;Autumn96, Vol. 25 Issue 3, p7 

  Reports that Switzerland offers a natural setting for investigating factors affecting the value of the stock voting rights. Previous work on the value of corporate voting rights; Equity capital structure of Swiss companies; Data used in the study; Measurement of the premium in value of the...

• Business should act for all its stakeholders--before `the feds' do. Mahoney, Richard J. // NACD Directorship;Feb97, Vol. 23 Issue 2, p4 

  Focuses on the need for corporations to take heed of employee and other stakeholders' rights. Need to modify corporate behavior; Anger caused by executive stock-option gains; Broadening stock option participation.

• Double your pleasure.  // Newsweek;5/9/1994, Vol. 123 Issue 19, p51 

  Describes the small bonuses for shareholders provided by many companies. Purchase of 100 shares of CML Group returns a ten percent discount on their NordicTrack exercise machines and Smith & Hawken garden equipment. What Wrigley gum offers.

• Relative Prices of Dual Class Shares. Smith, Brian F.; Amoako-Adu, Ben // Journal of Financial & Quantitative Analysis;Jun95, Vol. 30 Issue 2, p223 

  Empirical studies of dual class shares indicate that superior voting shares (SVS) sell at a premium relative to their counterpart restricted shares (RVS). This paper uses Toronto Stock Exchange data to show that SVS price premium over RVS reflects the expected takeover premium paid to...

• Monitoring Versus Bonding: Shareholder Rights and Management Compensation. Lippert, Robert L.; Moore, William T. // FM: The Journal of the Financial Management Association;Autumn1995, Vol. 24 Issue 3, p54 

  Using a sample of nearly 700 firms, we document a significant level of substitution between monitoring efforts by shareholders and bonding of Chief Executive Officers' (CEO) compensation with shareholder wealth. Direct shareholder monitoring effectiveness is measured by various dimensions of...

• Pfizer to Shareholders: 'We're Listening.'. McCafferty, Joseph // NACD Directorship;Sep2007, Vol. 33 Issue 4, p11 

  The article reports on the plans of the pharmaceutical company Pfizer to have a meeting between its board and institutional investors to discuss its corporate governance policies and practices, including those related to executive compensation, in 2007. According to the article, the company...

Read the Article