Dividend payouts and corporate governance quality: An empirical investigation

Pornsit Jiraporn, Jang Chul Kim, Young Sang Kim

Research output: Contribution to journalArticle

55 Citations (Scopus)

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

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Empirical investigation
Corporate governance
Dividends
Governance
Managers
Dividend policy
Institutional shareholders
Agency theory
Shareholders
Cash
Endogeneity
Propensity
Expropriation
Two-stage least squares

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics and Econometrics

Cite this

Jiraporn, Pornsit ; Kim, Jang Chul ; Kim, Young Sang. / Dividend payouts and corporate governance quality : An empirical investigation. In: Financial Review. 2011 ; Vol. 46, No. 2. pp. 251-279.
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Dividend payouts and corporate governance quality : An empirical investigation. / Jiraporn, Pornsit; Kim, Jang Chul; Kim, Young Sang.

In: Financial Review, Vol. 46, No. 2, 01.05.2011, p. 251-279.

Research output: Contribution to journalArticle

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