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Asian Review of Financial Research, Vol., No..
pp.1182~1216
pp.1182~1216
Dividend Policy and Corporate Governance Quality
Pornsit Jiraporn Great Valley School of Graduate Professional Studies Pennsylvania State University
Jang-Chul Kim College of Business North Dakota State University
Young Sang Kim Department of Economics and Finance Northern Kentucky University
We use agency theory to explore how a firm¡¯s overall quality of corporate governance affects its dividend policy. The evidence shows a robust positive association between governance quality and dividend payouts, i.e. firms with stronger governance exhibit a higher propensity to pay dividends and pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. The results remain robust even after controlling for a large number of firm characteristics such as size, profitability, leverage, growth opportunity, tax effect, firm maturity, cash availability and share repurchases. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.
Pornsit Jiraporn
Jang-Chul Kim
Young Sang Kim
We use agency theory to explore how a firm¡¯s overall quality of corporate governance affects its dividend policy. The evidence shows a robust positive association between governance quality and dividend payouts, i.e. firms with stronger governance exhibit a higher propensity to pay dividends and pay larger dividends. The results are consistent with the notion that shareholders of firms with better governance quality are able to force managers to disgorge more cash through dividends, thereby reducing what is left for expropriation by opportunistic managers. The results remain robust even after controlling for a large number of firm characteristics such as size, profitability, leverage, growth opportunity, tax effect, firm maturity, cash availability and share repurchases. Our results are important as they show that corporate governance quality does have a palpable impact on critical corporate decisions such as dividend policy.