Do Family Firms Use Dividend Policy as a Governance Mechanism? Evidence from the Euro zone

Abstract

Manuscript Type Empirical Research Question/Issue This study investigates whether family firms use dividend policy as a corporate governance mechanism to overcome agency problems between the controlling family and minority investors. We further account for deviations between ownership and control and consider the presence and identity of other large shareholders in family companies. Research Findings/Insights Based on a sample of firms from nine Eurozone countries and using a panel data method, we find that family firms distribute higher and more stable dividends to alleviate expropriation concerns of minority investors. However, the higher dividend payments are mainly explained by family firms with no separation between the largest owner's voting and cash flow rights and those with non‐family second blockholders. Theoretical/Academic Implications We contribute to the literature by shedding light on how the family business model affects companies’ dividend preferences. Our research also highlights the importance of taking into account the identity of large shareholders, especially in a context in which concentrated ownership structures are commonplace. The reported differences in dividend policies between family and non‐family firms help to clarify the variant performances of family businesses found in previous studies. Practitioner/Policy Implications Family firms should regard dividend policy as a governance tool that allows them to attract prospective investors and enlarge their shareholder base. Simultaneously, minority investors can benefit from family firms’ dividend decisions. Our evidence also suggests that European policy makers should lay the necessary foundations to prevent controlling families from adopting ownership structures that serve their own personal interests.

Family Ownership and Dividend Policy: Empirical Evidence from Malaysia

“…Nevertheless, the controlling shareholders may engage in rent extraction and enjoy private benefits of control from high dividends for themselves (Gugler & Yurtoglu, 2003;Pindado et al, 2012). Payment of high dividends to themselves could actually transfer the firm's cash flow to the controlling shareholders.…”

“…The extraction of the resources is against the interest of the minority shareholders.This behaviour is usually profound in firms where corporate pyramid structure exists as discovered by Faccio et al (2001) in their study of firms in Western Europe and East Asian countries. Controlling shareholders basically try to mask their expropriation behaviour through high dividend pay-outs, where the minority and non-family shareholders could signal credibility of behaviour from the high dividends (Pindado et al, 2012). This scenario is far better than the environment where the dividend is rarely being paid.…”

Perusahaan Keluarga dan Kebijakan Dividen di Indonesia

“…Yoshikawa dan Rasheed (2010) menganalisis sampel perusahaan Jepang dan menemukan nilai dividen pay-out yang lebih tinggi untuk perusahaan keluarga. Pindado et al (2012) meneliti sampel perusahaan dari sembilan negara zona euro selama sepuluh tahun. Mereka menemukan bahwa perusahaan keluarga cenderung memiliki dividen pay-out yang lebih tinggi.…”

Analisis Perbedaan Dividen Pada Perusahaan Keluarga Dan Non Keluarga Berdasarkan Kepemilikan Ultimat

“…Penelitian mengenai kebijakan dividen pada perusahaan keluarga pernah dilakukan oleh Pindado et al (2012) dengan sampel 645 perusahaan di zona Euro dimana 482 perusahaan merupakan perusahaan keluarga dan 163 perusahaan non keluarga. Hasilnya membuktikan bahwa perusahaan keluarga membagikan dividen yang lebih tinggi dan lebih stabil dibandingkan perusahaan non keluarga.…”