Journal of Banking & Finance 27 (2003) 1297–1321
Corporate governance, dividend payout
policy, and the interrelation between
dividends, R&D, and capital investment
Department of Economics, University of Vienna, WP No. 9803, Br€nnerstrasse 72, 1210 Vienna, Austria u
Received 12 October 2000; accepted 5 November 2001
This paper investigates the relationship between dividends and the ownership and control structure of the ﬁrm. For a panel of Austrian ﬁrms over the 1991/99 period, we ﬁnd that statecontrolled ﬁrms engage in dividend smoothing, while family-controlled ﬁrms do not. The latter choose signiﬁcantly lower target payout levels. Consistently, state-controlled ﬁrms are most reluctant and family-controlled ﬁrms are least reluctant to cut dividends when cuts are warranted. The dividend behavior of bank- and foreign-controlled ﬁrms lies in between stateand family-controlled ﬁrms. This is consistent with the expected ‘‘ranking’’ of information asymmetries and managerial agency costs. The above results hold for ﬁrms with good investment opportunities. We ﬁnd that ﬁrms with low growth opportunities optimally disgorge cash irrespective of who controls the ﬁrm.
Ó 2002 Elsevier Science B.V. All rights reserved.
JEL classiﬁcation: G3; L2; D9
Keywords: Corporate governance; Dividend policy; Simultaneous equations
In March 1999, Richard Schenz, the CEO of OMV AG, the largest Austrian corporation, announced a dividend increase of 10% despite the fact that ordinary earnings had declined by 47%. In April 2000, Claus Raidl, the CEO of B€hler–Uddeholm o
AG, an Austrian steal company, announced an earnings drop of 31%, nevertheless *
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K. Gugler / Journal of Banking & Finance 27 (2003) 1297–1321
dividends increased by 2% points. Both, OMV and B€hler–Uddeholm have one thing o
in common: they are ultimately owned and controlled by the state, i.e. by the Republic of Austria. This paper tries to answer the questions why dividends are sometimes not cut when cuts are warranted and more generally why some ﬁrms smooth dividends, despite the potential costs involved for shareholders. 1 It argues that the answers to these questions can be found by examining company corporate governance structures. The causes and consequences of diﬀerent corporate governance systems in place all over the world have been the subject of extensive scrutiny in recent years. In most Anglo-Saxon countries like the US or UK, law often postulates ﬁduciary duties for management such as loyalty to shareholders, and governance is exerted mainly via ‘‘markets for corporate control’’ in the form of takeovers, proxy ﬁghts, or LBOs. In contrast, governance systems in non-Anglo-Saxon countries diﬀer remarkably. In Japan, keiretsus and cross-shareholdings are common governance devices while law requirements for management are rather weak. In Continental Europe, as in Germany, Italy, France or Austria, a concentrated ownership structure is the distinguishing feature, and corporate law again plays a minor role. 2 Indeed, La Porta et al. (1999) assert that in most countries other than the USA or UK ownership and (even more so) control is concentrated in the hands of a few owners. Moreover, since the structure of capital markets and corporate governance systems is so much diﬀerent, the determinants of key corporate decision variables are likely to diﬀer as well. This paper asserts that dividend payments are dependent on the identity of the controlling owner of the ﬁrm. Besides tremendous ownership concentration, a peculiarity of the corporate governance system in Austria is that the state still holds many controlling equity blocks in non-ﬁnancial...
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