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DIVIDEND POLICY: BALANCING SHAREHOLDERS' AND CREDITORS' INTERESTS
Author(s) -
Shao Liang,
Kwok Chuck C.Y.,
Guedhami Omrane
Publication year - 2013
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.2013.12002.x
Subject(s) - expropriation , dividend , shareholder , creditor , dividend policy , agency cost , business , equity (law) , accounting , principal–agent problem , debt , monetary economics , agency (philosophy) , corporate governance , financial system , finance , economics , market economy , law , philosophy , epistemology , political science
Dividend 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.