The Role of Dividends, Debt and Board Structure in the Governance of Family Controlled Firms

Authors

  • Lukas Setia-Atmaja,

    1. The first author is Research Fellow at Monash University and Senior Lecturer at Prasetiya Mulya Business School Indonesia. The second and third authors are respectively, Associate Professor and Professor of Accounting and Finance at Monash University. They would like to acknowledge Christine Brown, Jorge Farinha, Barry Oliver, Gary Twite, Elisabete Vieira and seminar participants at the European Financial Management Association 2007 and the Asian Finance Association 2007 annual meetings for their useful comments and suggestions. They would also like to express their gratitude to Dr Nicholas A. Mroczkowski for making available a list of family and non-family controlled firms on the Australian Stock Exchange, to Professors Robert Brooks, Donald Stokes and to the anonymous referee for their insightful comments. The financial support from the Australian Government (AusAid) and Prasetiya Mulya Business School Indonesia is gratefully acknowledged.
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  • George A. Tanewski,

    1. The first author is Research Fellow at Monash University and Senior Lecturer at Prasetiya Mulya Business School Indonesia. The second and third authors are respectively, Associate Professor and Professor of Accounting and Finance at Monash University. They would like to acknowledge Christine Brown, Jorge Farinha, Barry Oliver, Gary Twite, Elisabete Vieira and seminar participants at the European Financial Management Association 2007 and the Asian Finance Association 2007 annual meetings for their useful comments and suggestions. They would also like to express their gratitude to Dr Nicholas A. Mroczkowski for making available a list of family and non-family controlled firms on the Australian Stock Exchange, to Professors Robert Brooks, Donald Stokes and to the anonymous referee for their insightful comments. The financial support from the Australian Government (AusAid) and Prasetiya Mulya Business School Indonesia is gratefully acknowledged.
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  • Michael Skully

    Corresponding author
    1. The first author is Research Fellow at Monash University and Senior Lecturer at Prasetiya Mulya Business School Indonesia. The second and third authors are respectively, Associate Professor and Professor of Accounting and Finance at Monash University. They would like to acknowledge Christine Brown, Jorge Farinha, Barry Oliver, Gary Twite, Elisabete Vieira and seminar participants at the European Financial Management Association 2007 and the Asian Finance Association 2007 annual meetings for their useful comments and suggestions. They would also like to express their gratitude to Dr Nicholas A. Mroczkowski for making available a list of family and non-family controlled firms on the Australian Stock Exchange, to Professors Robert Brooks, Donald Stokes and to the anonymous referee for their insightful comments. The financial support from the Australian Government (AusAid) and Prasetiya Mulya Business School Indonesia is gratefully acknowledged.
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* Address for correspondence: George Tanewski, Associate Professor, Department of Accounting and Finance, Faculty of Business and Economics, Monash University, PO Box 197, VIC, 3145, Australia.
e-mail: george.tanewski@buseco.monash.edu.au

Abstract

Abstract:  We investigate whether family controlled firms use dividends, debt and board structure to exacerbate or mitigate agency problems between controlling and minority shareholders in a capital market environment with high investor protection and private benefits of control. Results indicate family controlled firms employ higher dividend payout ratios, higher debt levels and lower levels of board independence compared to non-family firms. This suggests family controlled firms use either dividends or debt as a substitute for independent directors. We also find that dividends and debt are more effective governance mechanisms in mitigating the families’ expropriation of minority shareholders’ wealth. Independent directors are, in contrast, more effective in controlling owner-manager conflict in non-family firms.

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