Ownership Concentration Affects Dividend Policy of the Brazilian Firm

Abstract

The paper aims to analyze, under the Agency Theory framework, whether ownership concentration has effects on dividend policy of the Brazilian company. Specifically, the work analyzes the possibility of expropriation of minority shareholders by reducing the dividend distribution as predicted by the expropriation hypothesis. For an unbalanced data panel, composed of 2,274 firm-year observations of 254 companies listed on the BM&FBovespa, in the period 1996-2012, dividend models were estimated by the generalized method of moments (GMM). The results indicate that ownership concentration, proxied by the presence of a major shareholder, in fact, has a negative effect on the dividend distribution. This result is in agreement with the expropriation hypothesis of minority shareholders by controlling shareholders who may have other ways of obtaining return for their investment. The work presents an additional contribution to the understanding of the Brazilian company's dividend policy by providing evidence in the context of the agency conflicts. Indeed, the ownership concentration seems to have an important role in determining the dividend policy in Brazil, which is harmful for minority shareholders.

Keywords: Dividend Policy, Ownership Structure, Expropriation Hypothesis, Brazil

JEL Classification: G31, G35