Dividend payouts and corporate governance quality: An empirical investigation

Pornsit Jiraporn, Jang Chul Kim, Young Sang Kim

Research output: Contribution to journalArticle

72 Scopus citations

Abstract

Motivated by agency theory, we investigate how a firm's overall quality of corporate governance affects its dividend policy. Using a large sample of firms with governance data from The Institutional Shareholder Services, we find that firms with stronger governance exhibit a higher propensity to pay dividends, and, similarly, dividend payers tend to pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. We employ the two-stage least squares approach to cope with possible endogeneity and still obtain consistent results. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.

Original languageEnglish (US)
Pages (from-to)251-279
Number of pages29
JournalFinancial Review
Volume46
Issue number2
DOIs
StatePublished - May 1 2011

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

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