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Book cover: Research in Finance

Research in Finance

ISSN: 0196-3821
Series editor(s): Professor John Kensinger

Subject Area: Accounting and Finance

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Ownership structure, agency costs and dividend policy

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Title:Ownership structure, agency costs and dividend policy
Author(s):Mukesh Bajaj, Anand M. Vijh, Randolph W. Westerfield
Volume:19 ISBN: 978-0-76230-965-8 eISBN: 978-1-84950-178-1
Citation:Mukesh Bajaj, Anand M. Vijh, Randolph W. Westerfield (2002), Ownership structure, agency costs and dividend policy, in (ed.) 19 (Research in Finance, Volume 19), Emerald Group Publishing Limited, pp.1-28
DOI:10.1016/S0196-3821(02)19002-2 (Permanent URL)
Publisher:Emerald Group Publishing Limited
Article type:Full length article
Abstract:We find that, at low levels of insider ownership, the market's reaction to dividend increases becomes less positive, and to dividend decreases becomes less negative, as insider ownership increases. The price reaction is larger when insiders control voting on shares they do not own and lower if a family owns a block. The results are .stronger for firms with low values of Tobin's Q. Several tests indicate that these cross-sectional results are not a manifestation of the information content hypothesis. Instead, the findings support the hypothesis that dividend increases reduce the agency costs of free cash flow and vice versa.

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