Motivated by agency theory, we investigate how a firm's overall quality of corporate governance affects its dividend policy. Using a large sample of firms with governance data from The Institutional Shareholder Services, we find that firms with stronger governance exhibit a higher propensity to pay dividends, and, similarly, dividend payers tend to 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. We employ the two-stage least squares approach to cope with possible endogeneity and still obtain consistent results. Our results are important as they show that corporate

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Motivated by agency theory, we explore the effect of corporate governance quality on corporate social responsibility (CSR), using the governance standards provided by Institutional Shareholder Services (ISS). Our evidence reveals that firms with more effective governance make significantly less investment in CSR. It appears that managers tend to over‐invest in CSR and are forced to reduce CSR investments when corporate governance is more effective. In particular, an improvement in governance quality by one standard deviation translates into a decline in CSR investments by 7.16%. Our fixed‐effects analysis also shows that, within firms, when governance quality improves over time, CSR investments decline significantly. Using the passage of the Sarbanes‐Oxley Act of 2002 as an exogenous shock that improves the quality of corporate governance, we demonstrate that high‐quality governance is not merely associated with, but rather brings about, lower CSR investments.

This study analyzes the effect of information asymmetry on corporate cash holdings. Using various measures of information asymmetry, this study shows that companies that operate in environments with higher information asymmetry have smaller cash holdings. This study continues to find a negative relationship between information asymmetry and corporate cash holdings from a battery of sensitivity analyses, including the tests using different regression methods and the difference-in-difference tests employing brokerage-firm merger and closure events. On the whole, the results support the monitoring cost hypothesis of cash holdings over the investment opportunities hypothesis.

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