The association between ownership concentration and payout behaviour: Evidence from South Africa

Abstract

Orientation: The study investigated the association between ownership concentration and different payout methods of selected companies listed on the Johannesburg Stock Exchange (JSE) in South Africa for the financial reporting periods 2012 to 2019.Research purpose: The research objective was to investigate whether payout behaviour differed when low and high ownership concentration was compared.Motivation for the study: An understanding of the association between ownership concentration and payout policies is an important corporate governance aspect that could reveal the agency conflict between majority and minority shareholders. No previous South African empirical study has considered testing or investigating the two opposing agency-based hypotheses, namely the monitoring and rent extraction hypotheses, with reference to different payout methods.Research design, approach, and method: An empirical research design was followed, which is descriptive in nature. Descriptive statistics and a mixed-model analysis of variance were employed to describe the different payout methods – that is ordinary dividends, special dividends, capital distributions, additional shares, general share repurchases, and specific share repurchases – employed by companies listed on the JSE based on a distinction between low and high ownership concentration.Main findings: High ownership concentration was found to be associated with statistically significant lower ordinary dividends and capital distributions in support of the rent extraction hypothesis. Rent extraction highlights the agency conflict between majority and minority shareholders.Practical/managerial implications: Findings of the present study revealed agency conflicts that may be informative to those charged with corporate governance to help them resolve agency conflict.Contribution/value-add: This study is the first to consider the association between ownership concentration and payout behaviour in South Africa subsequent to the introduction of the dividends tax regime in 2012. The descriptive evidence submitted can serve as a basis for further explanatory research relating to ownership concentration and payout behaviour of companies.

Investigating the link between board independence and dividend distributions in South Africa

“…These findings confirm previous research showing that dividends are often omitted or reduced during economic or financial crises (Bozos et al, 2011;Forti & Schiozer, 2015). As mentioned earlier, the STC tax regime in South Africa changed to a dividend withholding tax (DWT) regime on 01 April 2012 (Nel et al, 2021). No statistically significant changes, however, occurred from 2011 to 2012 or from 2012 to 2013 in either the percentage of dividend payers or the average DPRs.…”

“…Company size and profitability were positively associated with the sampled companies' DPRs, whereas negative relationships were reported with sales growth and free cash flow (FCF). Furthermore, Nel et al (2021) observed that high ownership concentration was significantly related to lower ordinary dividends and capital distributions. Their sample included companies across three main industries, namely basic materials, industrials and financials.…”

“…Although board independence was negatively related to DPR, this association was not significant. It should be taken into account that many factors influence the payment of dividends in South Africa (Nel et al, 2021;Nyere & Wesson, 2019). Furthermore, King IV affords JSE-listed companies substantial flexibility to classify their directors as INEDs.…”