Ownership concentration and dividend policy in Japan

Abstract

PurposeThe purpose of this paper is to test two agency‐based hypotheses regarding the effect of ownership concentration on dividend policy using a large sample of Japanese firms.Design/methodology/approachLevel regressions associating payout rates to ownership concentration are run. Different measures of payout are used to ensure the robustness of our findings. Endogeneity of ownership is taken into account. The choice of instruments is carefuly motivated and their statistical power and exogeneity are checked. How ownership concentration affects the propensity to increase dividends following changes in variables correlated with free cash flows is also examined.FindingsThe results are consistent with rent extraction by large shareholders. Ownership concentration is associated with significantly lower dividends in proportion to earnings as well as relative to book equity. An endogenous relation between ownership concentration and dividend payout is established, but the results are not statistically different. Firms with concentrated ownership are also less likely to increase dividends when earnings increase or when debt decreases.Practical implicationsLarge shareholders do not appear to use dividend policy to remove excess cash and impose greater financial discipline on managers. Instead, the results underline the conflicts of interest between majority and minority shareholders.Originality/valueThe endogeneity of ownership is controlled for using firm age and the industry's average ownership concentration as instruments. The effect of ownership concentration on dividend changes following changes in proxies for free cash flows is also analyzed.

Ownership Structure and Dividend Policy: Evidence from China

“…Consistent with Truong and Heaney (2007), Model 1 shows that there is a positive relationship between the ownership of the largest shareholder and the magnitude of dividend payouts. Model 2 also shows a positive coefficient of ownership concentration (TOP5) on dividend payout ratio, a finding consistent with Thanatawee (2013) but in contrast with Khan (2006) and Harada and Nguyen (2011). Likewise, Model 3 indicates that the ownership of the government has a positive relationship with dividend payout ratio, a finding in line with those of Chen et al (2009) and Bradford et al (2013).…”

On The Impact Of Family Versus Institutional Blockholders On Dividend Policy

“…Accordingly, dominant shareholders are prone to accumulate higher private benefits so that it remains little benefits to be shared with other shareholders, and thus lower dividend (Shleifer & Vishny, 1997;Facio et al, 2000;Johnson et al, 2000;Dyck & Zingales, 2004;Renneboog & Trojanowski, 2005;Luciana & Aydin, 2006;Khan, 2006). Even though when the funds increase thanks to a rise in earnings or leverage, concentrated-ownership firms are reluctant to raise dividends (Harada & Nguyen, 2011). Higher ownership concentration is thus expected to be associated with lower dividends.…”

Nonfinancial Firms as Large Shareholder Use Dividend Policy for Management Monitoring in Brazil

“…Since then, research has focused on this aspect of dividend policy. Under the agency conflicts theoretical framework, the use of dividend policy has also been pointed out as an additional mechanism for management monitoring given that high dividend payout reduces the free cash flow submitted to discretionary managerial control, this way functioning as an important instrument for management monitoring (Harada & Nguyen, 2011;Jensen, 1986;López-Iturriaga & Crisóstomo, 2010). control as predicted by the expropriation effect argument (Brandão & Crisóstomo, 2015;Crisóstomo & Brandão, 2016;Johnson, La Porta, Lopez-deSilanes, & Shleifer, 2000;Shleifer & Vishny, 1997).…”

“…In fact, some agency models that take into account corporate governance practices and the role of shareholders have been proposed for the explanation of the relationship between ownership structure and dividend policy (Florackis et al, 2015;Gopalan et al, 2014;Harada & Nguyen, 2011;Khan, 2006;Mori & Ikeda, 2015).…”

“…Dividend policy is also related to the availability of internal funds for investment funding which is an important source of financing according to the Pecking order theory. Dividend payout will (Florackis, Kanas, & Kostakis, 2015;Gopalan et al, 2014;Harada & Nguyen, 2011;Jensen, 1986;Khan, 2006;La Porta et al, 2000;Lee, Liu, Roll, & Subrahmanyam, 2006;Mori & Ikeda, 2015).…”