Ownership Concentration, Agency Conflicts, and Dividend Policy in Japan

25 Pages Posted: 24 Dec 2006

See all articles by Kimie Harada

Kimie Harada

Chuo University - Faculty of Commerce; Chuo University - Graduate School of International Accounting

Pascal Nguyen

University of New South Wales

Multiple version iconThere are 2 versions of this paper

Date Written: December 24, 2006

Abstract

We examine the dividend policy of Japanese firms and find that dividend payout is negatively related to ownership concentration. This result contradicts the argument that dividends are substitute for shareholder monitoring, but supports the assumption that controlling shareholders extract private benefits at the expense of minority shareholders. Consistent with their lower payout, firms with dominant shareholders are less likely to increase dividends when profitability increases and more likely to omit dividends when investment opportunities improve. On the other hand, they are more likely to increase dividend when debt is high and less likely to omit dividends when debt increases, which is tantamount to a wealth transfer from debtholders. Overall, ownership concentration appears to play a critical role in corporate decisions, mainly due to the way it intensifies the agency conflicts between majority and minority shareholders.

Keywords: dividend policy, agency conflicts, ownership concentration

JEL Classification: G35

Suggested Citation

Harada, Kimie and Nguyen, Pascal, Ownership Concentration, Agency Conflicts, and Dividend Policy in Japan (December 24, 2006). Available at SSRN: https://ssrn.com/abstract=953433 or http://dx.doi.org/10.2139/ssrn.953433

Kimie Harada

Chuo University - Faculty of Commerce ( email )

742-1, Higashinakano
Hacihoji
Tokyo, 192-0393
Japan

Chuo University - Graduate School of International Accounting ( email )

42-8, Ichigaya-Motomuacho
Shinjuku-ku
Tokyo 162-8473
Japan

Pascal Nguyen (Contact Author)

University of New South Wales ( email )

Sydney, NSW 2052
Australia
(61) 2-9385-5773 (Phone)
(61) 2-9385-6730 (Fax)

HOME PAGE: http://www.banking.unsw.edu.au/pascalnguyen/

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