scholarly journals Does a high dividend payout ratio signal proper corporate governance or high agency cost of debt?

2017 ◽  
Vol 14 (2) ◽  
pp. 51-58 ◽  
Author(s):  
Imad Jabbouri ◽  
Abdelillah El Attar
Keyword(s):  
Agency Costs ◽  
Negative Relationship ◽  
Agency Cost ◽  
Cost Of Debt ◽  
Information Asymmetries ◽  
Dividend Payout ◽  
Dividend Payments ◽  
Agency Cost Of Debt ◽  
The Cost ◽  
The Relationship

This paper examines the relationship between dividend policy and the cost of debt in Morocco. The results show that high dividend payments reflect a low level of agency costs of equity and low information asymmetries. Consequently, creditors demand lower return for providing their capital to high dividend-paying firms. The findings reveal that creditors are less concerned with agency costs of debt. The study shows that the negative relationship between dividend payout ratios and cost of debt is more pronounced in firms with higher information asymmetries.

scholarly journals Cost Of Debt And Dividend Policy: Evidence From The MENA Region

2015 ◽  
Vol 31 (5) ◽  
pp. 1637 ◽  
Author(s):  
Omar Farooq ◽  
Imad Jabbouri
Keyword(s):  
Emerging Markets ◽  
Dividend Policy ◽  
Value Relevance ◽  
Negative Relationship ◽  
Cost Of Debt ◽  
Information Asymmetries ◽  
Mena Region ◽  
Dividend Payout ◽  
Policy Effect ◽  
The Relationship

<p>How does dividend policy effect cost of debt in emerging markets? Does it increase the perceived conflict of interests between creditors and shareholders or vice versa? This paper seeks to answer these questions by documenting the relationship between dividend payout ratios and cost of debt in emerging markets. Using a dataset from the MENA region, we document a significantly negative relationship between dividend payout ratios and cost of debt during the period between 2005 and 2011. We argue that high dividend payouts reduce information asymmetries. Consequently, creditors demand lower return for providing their capital to firms. We also show that the negative relationship between dividend payout ratios and cost of debt are more pronounced in firms with higher information asymmetries. It indicates that value relevance of high dividend payout ratios is more in firms that have higher information asymmetries. These firms have scarcity of information. Therefore, whenever information environment improves, it is highly valued by creditors.</p>

Corporate governance and dividends payout: are they substitutes or complementary?

2015 ◽  
Vol 9 (2) ◽  
pp. 177-194 ◽  
Author(s):  
Samuel Jebaraj Benjamin ◽  
Mazlina Mat Zain
Keyword(s):  
Corporate Governance ◽  
Agency Costs ◽  
Negative Relationship ◽  
Board Independence ◽  
Board Meeting ◽  
Dividend Payout ◽  
Content Type ◽  
Significant Negative Relationship ◽  
The Relationship ◽  
Unique Relationship

Purpose – This paper aims to furnish incremental insights on dividends and corporate governance (CG) by addressing the relationship between board meeting frequency and board independence with dividend payout. In particular, this study aims to investigate whether CG attributes are substitutes to control agency problem within the Malaysian context. Design/methodology/approach – This paper examines panel data on a sample of 114 Malaysian firms (798 observations) for seven years from 2002 to 2008. Findings – Based on 798 firm-year observations for the period from 2002 to 2008, the results show significant negative relationship between CG (board independence, board meeting frequency) and dividend payout. This suggests that CG and dividend payout are substitutes in reducing agency costs. Our study provides empirical evidence consistent with the “substitution argument”, indicating that firms with weak CG need to establish reputation by paying more dividends. Specifically, the findings indicate that firms with a higher proportion of independent directors and boards of director that meet more frequent pay lower dividends. Originality/value – This paper provides evidence on previously untested governance characteristics in relation to how they act as substitute mechanisms with dividends for reducing agency costs. The results builds a strong case for the fresh strand of knowledge on dividends and CG which tests each CG variables to understand each of its unique relationship with dividends in line with the dividends outcome or substitute theory.

scholarly journals Dividend policy and ownership structure: A study of Russian dual-class stock companies.

2017 ◽  
Vol 15 (1) ◽  
pp. 199-212 ◽  
Author(s):  
Irina Berezinets ◽  
Yulia Ilina ◽  
Liudmila Alekseeva
Keyword(s):  
Ownership Structure ◽  
Dividend Policy ◽  
Negative Relationship ◽  
Trading System ◽  
Public Companies ◽  
Dividend Payout ◽  
Dividend Payments ◽  
Dual Class Shares ◽  
Dual Class ◽  
The Relationship

This paper explores the relationship between ownership structure and dividend policy in Russian public companies with dual-class shares. The sample includes all companies issuing both ordinary (voting) and preferred (non-voting) shares traded on the Russian Trading System (RTS) in the period of 2003-2009. Using panel data and employing both linear and nonlinear regression modeling approach, we tested the relationship between ownership structure and dividend payout. One of the major conclusions is the existence of a negative relationship between the dividend payout on ordinary shares and institutional ownership, as well as between dividend payout on ordinary shares and offshore ownership. Unlike for ordinary shares, ownership structure is not related to dividend payments on preferred shares. Dividend policy on preferred shares is, instead, essentially related to a company’s performance.

scholarly journals Accounting Conservatism and Managerial Excess Perks

2019 ◽  
Vol 8 (2) ◽  
pp. 32
Author(s):  
Han Li
Keyword(s):  
Agency Costs ◽  
Negative Relationship ◽  
Agency Cost ◽  
Accounting Conservatism ◽  
Financial Leverage ◽  
The Relationship

This paper sheds light on the relationship between accounting conservatism and managerial excess perks. In general, there are two views about managerial perks, agency cost view and management incentive view. Under the assumption that considers managerial perks as agency costs, the abnormal managerial perks erode the value of firms. Accounting conservatism can significantly restrict the managerial excess perks. Due to the strict compensation regulation in China’s SOEs, the negative relationship between accounting conservatism and excess perks in China’s SOEs is stronger than in non-SOEs. Further, in the robustness tests, this paper finds that negative relationship is stronger in the firms of lower level accounting conservatism or higher level financial leverage. 

Agency cost of debt: evidence from Kansas farm operations

2017 ◽  
Vol 77 (1) ◽  
pp. 111-124 ◽  
Author(s):  
Brady Brewer ◽  
Allen M. Featherstone
Keyword(s):  
Agency Costs ◽  
Cost Minimization ◽  
Returns To Scale ◽  
Minimum Cost ◽  
Agency Cost ◽  
Cost Of Debt ◽  
Variable Cost ◽  
Content Type ◽  
Cost Frontier ◽  
The Cost

Purpose The purpose of this paper is to examine how debt affects the cost structure of a farm. Agency costs arise when stakeholders of a farm manage their farm differently to obtain debt which results in inefficiencies. These inefficiencies cause a farm to deviate from cost minimization strategies. Design/methodology/approach This study uses the non-parametric technique of data envelopment analysis. Through this method, a non-stochastic cost frontier is constructed where all farms must lie on or above the frontier. This allows for the analysis of how debt affects the shape of the cost frontier and for how debt affects deviations away from cost-minimizing strategy. The shadow costs of the debt constraints in the linear programming problem are used to analyze the effect of debt at the cost frontier while a series of Tobit models are estimated to examine the effect of debt on deviations away from the frontier. Findings The findings of this paper support the existence of agency costs associated with debt for Kansas farms. The addition of debt and capital constraints lowered the minimum cost frontier increasing the average efficient cost under variable returns to scale. However, for those farms on the frontier, the shadow cost of debt was negative meaning an increase in debt would lower the overall variable cost. The increase of debt was found to be negatively correlated to the efficiency score of the farms. Originality/value This paper provides value by supporting the existence of agency costs which has been disagreed upon in the literature and also providing new insights for how to analyze agency costs. Since debt was found to have a negative shadow value for those farms on the frontier but negatively correlated with efficiency scores, this suggests that agency costs affect firms differently depending on where the farm is on the cost frontier.

scholarly journals TAX AVOIDANCE, RELATED PARTY TRANSACTIONS, CORPORATE GOVERNANCE AND THE CORPORATE CASH DIVIDEND POLICY

2017 ◽  
Vol 32 (3) ◽  
pp. 190
Author(s):  
Dewi Kartika Sari ◽  
Sidharta Utama ◽  
Hilda Rossieta
Keyword(s):  
Corporate Governance ◽  
Dividend Policy ◽  
Negative Relationship ◽  
Tax Avoidance ◽  
Payout Policy ◽  
Cash Dividend ◽  
Dividend Payout ◽  
Related Party Transactions ◽  
Dividend Payments ◽  
The Relationship

This study aims to investigate the relationship between tax avoidance, related party transactions and the corporate dividend policy. Furthermore, this study will also investigate the moderating effects of the implementation of Corporate Governance (CG) on the relationship between tax avoidance, Related Party Transactions (RPT) and corporate dividend policies. Our sample covers companies listed on the Indonesian Stock Exchange during 2011-2014. The results provide moderate support for the proposed hypotheses. First, the greater tax avoidance that a company makes will increase the size of the firm's RPT. Second, the higher that the company's RPT is, this will lower the company's cash dividend payout rate. Third, the greater the tax avoidance is, the lower the company's cash dividend payout rate will be, which is done through a related party transaction.Fourth, the impact of the implementation of strong CG will weaken the positive relationship between corporate tax avoidance and the company’s RPT size, strengthen the negative relationship between the RPT’s size and the cash dividend payout policy of the firm, and strengthen the negative relationship between the company’s tax avoidance and the company's cash dividend payout policy which is mediated by the company’s RPT. This study makes three contributions. First, this study shows an indirect relationship between tax avoidance and cash dividend payments, mediated by RPT. Second, this study tries to examine the effect of CG’s moderation on the relationship between tax avoidance and RPT, as well as the effect of CG’s moderation on the relationship between tax avoidance and cash dividend payments, mediated by RPT. Third, this study developed RPT measurements by looking at the RPT’s components more specifically (looking at components of transactions outside of the main business of the company - the "others" component).

How do Corporate Governance Decisions Affect Bondholders?

2016 ◽  
Vol 06 (03) ◽  
pp. 1650011 ◽  
Author(s):  
Hong Li ◽  
Yuan Wang
Keyword(s):  
Corporate Governance ◽  
Information Asymmetry ◽  
Agency Costs ◽  
Negative Relationship ◽  
Selection Effect ◽  
The Self ◽  
Cost Of Debt ◽  
Governance Mechanisms ◽  
Self Selection ◽  
The Cost

Existing studies have documented a negative relationship between the GIM corporate governance index (which contains anti-takeover provisions) and the corporate cost of debt, which implies that fewer anti-takeover provisions may lead to a larger shareholder expropriation of bondholder wealth. That is, strong corporate governance hurts bondholders (asset substitution hypothesis). However, another stream of research asserts that governance mechanisms may benefit bondholders by paring down agency costs and decreasing information asymmetry between the firm and the lenders (monitoring hypothesis). We reexamine this issue by considering the self-selection effect. We find that both hypotheses can be true, and that firms consider the reduction of cost of debt when self-selecting their governance, and the cost of debt would have been much higher had the alternative governance decision been made.

Corporate political connections, agency costs and audit quality

2016 ◽  
Vol 24 (4) ◽  
pp. 357-374 ◽  
Author(s):  
Arifur Khan ◽  
Dessalegn Getie Mihret ◽  
Mohammad Badrul Muttakin
Keyword(s):  
Agency Costs ◽  
Audit Quality ◽  
Agency Cost ◽  
Political Connections ◽  
Political Connection ◽  
Data Set ◽  
Research Attention ◽  
Content Type ◽  
Big 4 ◽  
The Relationship

Purpose The effect of political connections of agency costs has attracted considerable research attention due to the increasing recognition of the fact that political connection influences corporate decisions and outcomes. This paper aims to explore the association between corporate political connections and agency cost and examine whether audit quality moderates this association. Design/methodology/approach A data set of Bangladeshi listed non-financial companies is used. A usable sample of 968 firm-year observations was drawn for the period from 2005 to 2013. Asset utilisation ratio, the interaction of Tobin’s Q and free cash flow and expense ratio are used as alternative proxies for agency costs; membership to Big 4 audit firms or local associates of Big 4 firms is used as a proxy for audit quality. Findings Results show that politically connected firms exhibit higher agency costs than their unconnected counterparts, and audit quality moderates the relationship between political connection and agency costs. The results of this paper suggest the importance of audit quality to mitigate agency problem in an emerging economic setting. Research limitations/implications The findings of this paper could be of interest to regulators wishing to focus regulatory effort on significant issues influencing stock market efficiency. The findings could also inform auditors in directing audit effort through a more complete assessment of risk and determining reasonable levels of audit fees. Finally, results could inform financial statement users to direct investments to firms with lower agency costs. Originality/value To the knowledge of the authors, this study is one of the first to explore the relationship between political connection and agency costs, and the moderating effect of audit quality of this relationship.

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