NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Agency Problems and Dividend Policies Around the World

Rafael La Porta, Florencio Lopez-de-Silane, Andrei Shleifer, Robert Vishny

NBER Working Paper No. 6594
Issued in June 1998
NBER Program(s):   CF

This paper addresses the question of why firms pay dividends, the so-called outline two agency models of dividends. On what we call outcome minority shareholders to force corporate outsiders to disgorge cash. Under this model, stronger minority shareholder rights should be associated with higher dividends. On what we call substitute a reputation for 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 33 countries with different levels of shareholder protection, and therefore different strength of minority shareholder rights. The findings on payout levels and other results support the outcome agency model of dividends.

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Document Object Identifier (DOI): 10.3386/w6594

Published: Journal of Finance, Vol. 55, no. 1 (February 2000): 1-34.

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