Dividend policy, corporate governance and the managerial entrenchment hypothesis: An empirical analysis

• Type: Article in International Scientific Journal
• Date: 2003

Authors

Jorge Farinha (Author) FEP

Journal

Title: Journal of Business Finance and Accounting

Vol. 30

Pages: 1173-1209

ISSN: 0306-686X

Publisher: Wiley-Blackwell

Indexing

Scopus - 197 Citations

Scientific classification

CORDIS: Social sciences

Other information

Authenticus ID: P-007-DNP

DOI: 10.1111/j.0306-686x.2003.05624.x

Abstract (EN): This paper analyses the agency explanation for the cross-sectional variation of corporate dividend policy in the UK by looking at the managerial entrenchment hypothesis drawn from the agency literature. Consistent with predictions, a significant U-shaped relationship between dividend payout ratios and insider ownership is observed for a large (exceeding 600 firms) sample of UK companies and two distinct periods. These results strongly suggest the possibility of managerial entrenchment when insider ownership reaches a threshold of around 30%. Evidence is also presented that non-beneficial holdings by insiders can lead to entrenchment in conjunction with shares held beneficially.

Language: English

Type (Professor's evaluation): Scientific