Agency Problems and Dividend Policies Around the World

36 Pages Posted: 14 Jan 1998

See all articles by Florencio Lopez-de-Silanes

Florencio Lopez-de-Silanes

SKEMA Business School; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Robert W. Vishny

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: August 1998

Abstract

This paper addresses the question of why firms pay dividends, the so-called "dividend puzzle," from the agency perspective. We outline two agency models of dividends. On what we call "the outcomes" model, dividends are the result of effective pressure by minority shareholders rights should be associated with higher dividends. On what we call "the substitutes" model, insiders choose to pay dividends to establish a reputation for a decent treatment of minority shareholders so that firms can raise equity finance in the future. Under this model, stronger minority shareholder rights reduce the need for establishing a reputation, and so should be associated with lower dividends. We compare these models on a cross-section of 4,000 companies from around the world, which operate in countries with different levels of investor protection, and therefore different strength of minority shareholder rights. The findings on payout levels, as well as other results, support the outcome agency model of dividends.

JEL Classification: G35

Suggested Citation

Lopez-de-Silanes, Florencio and Shleifer, Andrei and Vishny, Robert W., Agency Problems and Dividend Policies Around the World (August 1998). Available at SSRN: https://ssrn.com/abstract=52871 or http://dx.doi.org/10.2139/ssrn.52871

Florencio Lopez-de-Silanes (Contact Author)

SKEMA Business School ( email )

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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European Corporate Governance Institute (ECGI)

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Robert W. Vishny

University of Chicago - Booth School of Business ( email )

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National Bureau of Economic Research (NBER)

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