Shareholder Conflicts and Dividends*

Abstract

We examine how dividend policy is used to mitigate potential conflicts of interest between majority and minority shareholders in private Norwegian firms. The average payout is 50% higher if the majority shareholder's equity stake is 55% (high conflict potential) rather than 95% (low conflict potential). Such minority-friendly payout is also associated with higher subsequent minority shareholder investment. These results suggest that controlling shareholders voluntarily use dividends to reduce agency conflicts and build trust, rather than opportunistically preferring private benefits to dividends. We show that our results are unlikely to arise from liquidity or signaling motives.

What If Dividends Were Tax‐Exempt? Evidence from a Natural Experiment

“…At least one 5 Lack of access to equity financing is particularly problematic for the S-corps studied by Yagan (2015) as they are prevented by law from having any institutional equity financing and from having more than 100 shareholders. Other recent papers studying the effects of dividend tax cuts on private firms' financial decisions include Jacob and Michaely (2017) and Berzins, Bøhren and Stacescu (2018). 6 For instance in Norway, 73% of the CEOs of the private firms studied by Berzins, Bøhren and Stacescu (2018) are members of the controlling family.…”

“…Other recent papers studying the effects of dividend tax cuts on private firms' financial decisions include Jacob and Michaely (2017) and Berzins, Bøhren and Stacescu (2018). 6 For instance in Norway, 73% of the CEOs of the private firms studied by Berzins, Bøhren and Stacescu (2018) are members of the controlling family.…”

Essays on the Real Effects of Tax Reforms

“…My paper contributes to the very limited literature on the effects of dividend taxes on the payout decisions of private firms and the portfolio choices of their shareholders (e.g., Michaely and Roberts, 2011;Berzins et al, 2018). While the existing literature provides some evidence that dividend taxes affect the payout decisions of private firms, prior studies generally consider the ownership structure of a private firm as being stable over time (e.g., Jacob and Michaely, 2017;Berzins et al, 2018). I extend the literature by providing first evidence that minority shareholders of private firms affected by the dividend tax reform react to the increase in dividend taxes by reducing their ownership stakes.…”

“…Prior literature predominantly examined the effect of taxes on publicly listed firms and their shareholders (e.g., Blouin et al, 2011;Desai and Jin, 2011). The thesis contributes to the limited literature on the response of private firms and their shareholders to changes in taxes (e.g., Michaely and Roberts, 2011;Berzins et al, 2018). Further, prior literature often excluded financial institutions from their analyses (e.g., Giroud and Rauh, 2019).…”

“…However, shareholders of private firms are highly affected by transaction costs because private firms operate on illiquid markets and generally have a small number of owners that could be potential buyers for minority stakes (e.g., Bennedsen and Wolfenzon, 2000). Therefore, prior studies that have examined the effect of dividend tax reforms on the payout decision of private firms reveal stable ownership structures over time (e.g., Jacob and Michaely, 2017;Berzins et al, 2018). Nevertheless, a large dividend tax increase for one particular group of shareholders that cannot influence the firm's dividend payout decision incentivises them to rebalance their portfolios.…”