Nonfinancial Firms as Large Shareholder Use Dividend Policy for Management Monitoring in Brazil
DOI:
https://doi.org/10.24023/FutureJournal/2175-5825/2018.v10i1.339Keywords:
Dividend policy, Management monitoring hypothesis, Ownership structure, Nonfinancial firm as dominant blockholder, BrazilAbstract
The paper analyzes whether nonfinancial firms as large blockholders of the Brazilian firm shape dividend policy. Under the Agency Theoretical framework a set of good corporate governance practices is suggested as able to control management activity and prevent managers from incurring in moral hazard problems and the emergence of excessive management power as predicted by the Managerial Power Hypothesis. In this context, the Management Monitoring Hypothesis proposes that dividend policy may be used as a management control mechanism given that dividend distribution affects the free cash flow available for managers. Dividend models were estimated by the Generalized Method of Moments (GMM) for an unbalanced panel data, composed of 1.890 firm-year observations of 234 companies listed on the BM&FBovespa, in the period 1996-2012. The results indicate that nonfinancial firms as large shareholders increase dividend payout which leads to the reduction of free cash flow. This result is in accordance with the monitoring hypothesis which predicts the reduction of free cash flow available for managers through dividend policy.
Downloads
References
Allen, J. W., & Phillips, G. M. (2000). Corporate Equity Ownership, Strategic Alliances, and Product Market Relationships. Journal of Finance, 55(6), 2791-2815.
Arellano, M., & Bond, S. (1998). Dynamic panel data estimation using DPD98 for Gauss: A guide for users Mimeo. London: The Institute for Fiscal Studies.
Arellano, M., & Bover, O. (1990). La econometria de datos de panel. Investigaciones Económicas, 14(1), 3-45.
Barclay, M. J., & Smith, C. W. J. (2005). The Capital Structure Puzzle: The Evidence Revisited. Journal of Applied Corporate Finance, 17(1), 8-17.
Bhattacharya, S. (1979). Imperfect Information, Dividend Policy, and "The Bird in the Hand" Fallacy. The Bell Journal of Economics, 10(1), 259-270.
Black, F. (1976). The dividend puzzle. Journal of Portfolio Management, 2, 5-8.
Blundell, R., & Bond, S. R. (1998). Initial conditions and moment restrictions in dynamic panel data models. Jounal of Econometrics, 87, 115-143.
Bøhren, Ø., Josefsen, M. G., & Steen, P. E. (2012). Stakeholder conflicts and dividend policy. Journal of Banking and Finance, 36(10), 2852-2864. doi: http://dx.doi.org/10.1016/j.jbankfin.2012.06.007
Bond, S., Chennells, L., & Devereux, M. (1995). Company Dividends and Taxes in the UK. Fiscal Studies, 16(3), 1-18. doi: 10.1111/j.1475-5890.1995.tb00224.x
Brandão, I. F., & Crisóstomo, V. L. (2015). Concentração de propriedade e qualidade da governança da empresa brasileira. Revista Brasileira de Finanças, 13(3), 438-469.
Claessens, S., & Djankov, S. (1999). Ownership Concentration and Corporate Performance in the Czech Republic. Journal of Comparative Economics, 27(3), 498-513. doi: http://dx.doi.org/10.1006/jcec.1999.1598
Crisóstomo, V. L. (2011). Inversión, Restricción Financiera y Estructura de Propiedad en Brasil (1 ed.). Saarbrücken: Editorial Académica Española (LAP LAMBERT Academic Publishing GmbH & Co. KG).
Crisóstomo, V. L., & Brandão, J. W. (2016). Ownership Concentration Affects Dividend Policy of the Brazilian Firm. Revista de Finanças Aplicadas, 7(3), 1-22.
DeAngelo, H., DeAngelo, L., & Skinner, D. J. (2004). Are dividends disappearing? Dividend concentration and the consolidation of earnings. Journal of Financial Economics, 72(3), 425–456. doi: 10.1016/S0304-405X(03)00186-7
DeAngelo, H., DeAngelo, L., & Skinner, D. J. (2008). Corporate Payout Policy. Foundations and Trends in Finance, 3(2-3), 95-287. doi: 10.1561/0500000020
Demsetz, H., & Lehn, K. (1985). The Structure of Corporate Ownership: Causes and Consequences. Journal of Political Economy, 93(6), 1155-1177.
Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62-82.
Dyck, A., & Zingales, L. (2004). Private Benefits of Control: An International Comparison. The Journal of Finance, 59(2), 537–600.
Elnathan, D., Gavious, I., & Hauser, S. (2010). An analysis of private versus public firm valuations and the contribution of financial experts. The International Journal of Accounting, 45, 387-412. doi: 10.1016/j.intacc.2010.09.001
Faccio, M., Lang, L. H. P., & Young, L. (2001). Dividends and expropriation. The American economic review, 91(1), 54-78.
Fama, E. F., & Babiak, H. (1968). Dividend Policy: An Empirical Analysis. Journal of the American Statistical Association, 63(324), 1132-1161.
Florackis, C., Kanas, A., & Kostakis, A. (2015). Dividend policy, managerial ownership and debt financing: A non-parametric perspective. European Journal of Operational Research, 241(3), 783-795. doi: 10.1016/j.ejor.2014.08.031
Goergen, M., & Renneboog, L. (2001). Investment Policy, Internal Financing and Ownership Concentration in the UK. Journal of Corporate Finance, Volume 7, Issue 3, pp. 257-284, September/2001., 7(3), 28.
Gopalan, R., Nanda, V., & Seru, A. (2014). Internal Capital Market and Dividend Policies: Evidence From Business Groups. Review Of Financial Studies, 27(4), 1102-1142. doi: 10.1093/rfs/hhu004
Gordon, M. J. (1959). Dividends, Earnings, and Stock Prices. The Review of Economics and Statistics, 41(2), 99-105.
Graham, J. R., & Kumar, A. (2006). Do dividend clienteles exist? Evidence on dividend preferences of retail investors. The Journal of Finance, 61(3), 1305-1336. doi: 10.1111/j.1540-6261.2006.00873.x
Gugler, K., & Yurtoglu, B. B. (2003). Corporate governance and dividend pay-out policy in Germany. European economic review, 47(4), 731-758. doi: 10.1016/S0014-2921(02)00291-X
Guthrie, K., Sokolowsky, J., & Wan, K.-M. (2012). CEO Compensation and Board Structure Revisited. The Journal of Finance, 67(3), 1149-1168. doi: 10.1111/j.1540-6261.2012.01744.x
Gutiérrez Urtiaga, M., & Sáez Lacave, M. I. (2014). La política de dividendos de las empresas con accionistas de control. InDret - Revista para el Análisis del Derecho, 3, 1-27.
Haesner, C., & Schanz, D. (2013). Payout Policy Tax Clienteles, Ex-dividend Day Stock Prices and Trading Behavior in Germany: The Case of the 2001 Tax Reform. Journal of Business Finance & Accounting, 40(3-4), 527-563. doi: 10.1111/jbfa.12018
Harada, K., & Nguyen, P. (2011). Ownership concentration and dividend policy in Japan. Managerial Finance, 37(4), 362-379. doi: 10.1108/03074351111115313
Harris, L. E., Hartzmark, S. M., & Solomon, D. H. (2015). Juicing the dividend yield: Mutual funds and the demand for dividends. Journal of Financial Economics, 116(3), 433-451. doi: 10.1016/j.jfineco.2015.04.001
Harris, M., & Raviv, A. (1991). The Theory of Capital Structure. Journal of Finance, 46(1), 297-355.
He, X., Li, M., Shi, J., & Twite, G. (2016). Why do firms pay stock dividends: Is it just a stock split? Australian Journal of Management, 41(3), 508-537. doi: 10.1177/0312896214553858
He, Z., Chen, X., Huang, W., Pan, R., & Shi, J. (2016). External finance and dividend policy: a twist by financial constraints. Accounting & Finance, 56(4), 935-959. doi: 10.1111/acfi.12245
Holanda, A. P., & Coelho, A. C. D. (2014). Estrutura de Propriedade em Firmas Brasileiras: Trajetória entre 1998-2012. Revista de Finanças Aplicadas, 3, 1-39.
Hoshi, T., Kashyap, A., & Scharfstein, D. (1991). Corporate structure, liquidity, and investment: evidence from Japanese industrial groups. Quarterly Journal of Economics, 106(1), 33-60.
Javakhadze, D., Ferris, S. P., & Sen, N. (2014). An international analysis of dividend smoothing. Journal of Corporate Finance, 29, 200-220. doi: 10.1016/j.jcorpfin.2014.09.007
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323-329.
John, K., & Williams, J. (1985). Dividends, Dilution, and Taxes: A Signalling Equilibrium. The Journal of Finance, 40(4), 1053-1070.
Johnson, S., La Porta, R., Lopez-de-Silanes, F., & Shleifer, A. (2000). Tunneling. The American Economic Review, 90(2), 22-27.
Khan, T. (2006). Company Dividends and Ownership Structure: Evidence from UK Panel Data. The Economic Journal, 116(510), C172-C189. doi: 10.1111/j.1468-0297.2006.01082.x
La Porta, R., López-de-Silanes, F., Shleifer, A., & Vishny, R. W. (2000). Agency Problems and Dividend Policies around the World. The Journal of Finance, 55(1), 1–33. doi: 10.1111/0022-1082.00199
Leal, R. P. C., Carvalhal-da-Silva, A. L., & Valadares, S. M. (2002). Estrutura de controle das companhias brasileiras de capital aberto. Revista de Administração Contemporânea, 6(1), 7-18. doi: 10.1590/S1415-65552002000100002
Lee, Y.-T., Liu, Y.-J., Roll, R., & Subrahmanyam, A. (2006). Taxes and dividend clientele: Evidence from trading and ownership structure. Journal of Banking & Finance, 30(1), 229–246. doi: 10.1016/j.jbankfin.2005.03.009
Lensink, R., & Van der Molen, R. (2010). Does group affiliation increase firm value for diversified groups?: New evidence from Indian companies. Journal of Empirical Finance, 17(3), 332-344.
Lintner, J. (1956). Distribution of Incomes of Corporations Among Dividens, Retained Earnings, and Taxes. American Economic Review, 46, 97-113.
López-Iturriaga, F. J., & Crisóstomo, V. L. (2010). Do leverage, dividend payout and ownership concentration influence firms’ value creation? An analysis of Brazilian firms. Emerging Markets Finance and Trade, 46(3), 80-94. doi: 10.2753/REE1540-496X460306
Manos, R., Murinde, V., & Green, C. J. (2007). Leverage and business groups: Evidence from Indian firms. Journal of Economics and Business, 59(5), 443-465.
Martins, A. I., & Famá, R. (2012). O que revelam os estudos realizados no Brasil sobre política de dividendos? Revista de Administração de Empresas, 52(1), 24-39. doi: 10.1590_s0034-75902012000100003
Miller, M. H., & Modigliani, F. (1961). Dividend Policy, Growth, and the Valuation of Shares. The journal of business, 34(4), 411-433.
Miller, M. H., & Rock, K. (1985). Dividend Policy under Asymmetric Information. Journal of Finance, 40(4), 1031-1051.
Modigliani, F., & Miller, M. H. (1958). The Cost of Capital, Corporation Finance and Theory of Investment. The American Economic Review, 48(3), 261-297.
Moreiras, L. M. F., Tambosi Filho, E., & Garcia, F. G. (2012). Dividendos e informação assimétrica: análise do novo mercado. Revista de Administração da Universidade de São Paulo, 47(4), 671-682. doi: http://dx.doi.org/10.5700/rausp1066
Mori, N., & Ikeda, N. (2015). Majority support of shareholders, monitoring incentive, and dividend policy. Journal of Corporate Finance, 30, 1-10. doi: 10.1016/j.jcorpfin.2014.10.015
Myers, S. C. (1977). Determinants of Corporate Borrowing. Journal of Financial Economics, 5, 147-175.
Myers, S. C. (1984). The Capital Structure Puzzle. The Journal of Finance, 39(3), 575-592.
Myers, S. C., & Majluf, N. S. (1984). Corporate Financing and Investment Decisions When Firms Have Information That Investors Do Not Have. Journal of Financial Economics, 13(2), 187-221.
Pindado, J., & De la Torre, C. (2006). The Role of Investment, Financing and Dividend Decisions in Explaining Corporate Ownership Structure: Empirical Evidence from Spain. European Financial Management, 12(5), 661-687.
Procianoy, J. L., & Verdi, R. S. (2009). Dividend clientele, new insights, and new questions: the Brazilian case. RAE-eletrônica, 8(1).
Renneboog, L., & Trojanowski, G. (2007). Control structures and payout policy. Managerial Finance, 33(1), 43-64. doi: 10.1108/03074350710715809
Shleifer, A., & Vishny, R. W. (1986). Large Shareholders and Corporate Control. Journal of Political Economy, 94(3), 461-488. doi: 10.1086/250042
Shleifer, A., & Vishny, R. W. (1997). A Survey of Corporate Governance. Journal of Finance, 52(2), 737-783.
Short, H., Zhang, H., & Keasey, K. (2002). The link between dividend policy and institutional ownership. Journal of Corporate Finance, 8(2), 105-122. doi: http://dx.doi.org/10.1016/S0929-1199(01)00030-X
Stein, J. C. (2003). Agency, information, and corporate investment. In G. M. Constantinides, M. Harris & R. M. Stulz (Eds.), Handbook of the Economics of Finance (pp. 111-165). Amsterdam: Elsevier, North-Holland.
Waud, R. (1966). Small Sample Bias due to Misspecification in the “Partial Adjustment” and “Adapted Expectations” Models. Journal of the American Statistical Association, 61(316), 134–145.
Wooldridge, J. M. (2002). Econometric analysis of cross section and panel data. Cambridge, MA: MIT Press.
Published
How to Cite
Issue
Section
License
Authors who publish with this journal agree to the following terms:
1. Authors who publish in this journal agree to the following terms: the author(s) authorize(s) the publication of the text in the journal;
2. The author(s) ensure(s) that the contribution is original and unpublished and that it is not in the process of evaluation by another journal;
3. The journal is not responsible for the views, ideas and concepts presented in articles, and these are the sole responsibility of the author(s);
4. The publishers reserve the right to make textual adjustments and adapt texts to meet with publication standards.
5. Authors retain copyright and grant the journal the right to first publication, with the work simultaneously licensed under the Creative Commons Atribuição NãoComercial 4.0 internacional, which allows the work to be shared with recognized authorship and initial publication in this journal.
6. Authors are allowed to assume additional contracts separately, for non-exclusive distribution of the version of the work published in this journal (e.g. publish in institutional repository or as a book chapter), with recognition of authorship and initial publication in this journal.
7. Authors are allowed and are encouraged to publish and distribute their work online (e.g. in institutional repositories or on a personal web page) at any point before or during the editorial process, as this can generate positive effects, as well as increase the impact and citations of the published work (see the effect of Free Access) at http://opcit.eprints.org/oacitation-biblio.html
• 8. Authors are able to use ORCID is a system of identification for authors. An ORCID identifier is unique to an individual and acts as a persistent digital identifier to ensure that authors (particularly those with relatively common names) can be distinguished and their work properly attributed.
