DIVIDEND POLICY: BALANCING SHAREHOLDERS' AND CREDITORS' INTERESTS

In: The journal of financial research: the journal of the Southern Finance Association and the Southwestern Finance Association, Band 36, Heft 1, S. 43-66

Abstract

AbstractDividend policies provide an opportune setting to examine how firms simultaneously manage the diverging interests of shareholders and creditors. Dividends ease shareholders' concerns about expropriation by insiders while exacerbating creditors' concerns about expropriation by shareholders. Firm insiders should set dividend policies to minimize the agency costs of equity and debt. Using a sample of 39 countries for 1991–2010, we find strong evidence that dividends are more positively sensitive to creditor (shareholder) rights when shareholders (creditors) are adequately protected. Our research emphasizes the importance of accounting for the interactions between both agency relationships when studying corporate policies.