We are very grateful to Gerald Jensen (associate editor) and Emre Unlu (reviewer) for their valuable insights and comments, which improved the paper considerably. We also thank Hong Yan, Paul Brockman, Kendall Roth, Xuying Cao, Patrick Cohendet, Martin Coiteux, Jean-Claude Cosset, Mara Faccio, Shirley Alyce Hunter, Gundula Lücke, Katie Kong, David Pastoriza Rivas, Bernard Sinclair-Desgagné, Mai Thi Thanh Thai, Mia Twu, Bahar Ulupinar, Scott E. Yonker, Xiaotian Tina Zhang, and Dazhi Zheng for their constructive comments. Our research has also benefited from comments from participants at the Financial Management Association annual meeting and the Academy of International Business annual meeting.
DIVIDEND POLICY: BALANCING SHAREHOLDERS' AND CREDITORS' INTERESTS†
Version of Record online: 19 MAR 2013
© 2013 The Southern Finance Association and the Southwestern Finance Association
Journal of Financial Research
Volume 36, Issue 1, pages 43–66, Spring 2013
How to Cite
Shao, L., Kwok, C. C.Y. and Guedhami, O. (2013), DIVIDEND POLICY: BALANCING SHAREHOLDERS' AND CREDITORS' INTERESTS. Journal of Financial Research, 36: 43–66. doi: 10.1111/j.1475-6803.2013.12002.x
- Issue online: 19 MAR 2013
- Version of Record online: 19 MAR 2013
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.