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Agency problems, product market competition and dividend policies in Japan


  • We thank an anonymous referee, Philip Brown, Andrew Jackson, Jianfeng Shen, Hua Wen, C. J Wong and participants at the EFM 2010 Asian Finance Symposium for helpful comments. We are also grateful to Marina Wang for her able research assistance.


This study investigates whether product market competition reduces agency problems between controlling shareholders and minority shareholders in Japan. In particular, we examine firms’ dividend policies in competitive versus concentrated industries. In a large sample of Japanese firms, we find that firms in more competitive industries pay more dividends, are more likely to increase dividends and are less likely to omit dividends. Furthermore, the impact of firm-level agency problems on dividend payouts is weaker in highly competitive industries. The results suggest that product market competition can be an effective industry-level governance mechanism that can force managers to disgorge cash to outside investors.