Comments on Does Corporate Governance Affect Dividend Policy by smx43008


									Comments on: Does Corporate
Governance Affect Dividend
Policy? Evidence from Poland

Kowalewski, Stetsyuk, Talavera

       Comments by Jan Hanousek,
              Survey of Dividend Theories
   Lintner (1956): partial adjustment process towards a target
    payout ratio
   Free Cash Flow Theory
        Divert free funds managers have power over within
         corporations away from them
        Theory: Easterbrook (1984); Jensen (1986); Zwiebel (1996)
        Empirics: Gugler (2003); DeAngelo, DeAngelo, and Stulz (2004); Desai, Foley,
         and Hines (2002); Dewenter and Warther (1998); Laporta, Lopez-de-Silanes,
         Shleifer, and Vishny (2000)
   Signaling Theory
        Communicate the level and growth of earnings or future
         prospects of the company to investors
        Theory: Bhattacharya (1979); Miller and Rock (1985)
        Empirics YES: Bernheim and Wantz (1995); Amihud and Murgia (1997)
        Empirics NO: Benartzi, Michaely, and Thaler (1997)
   (Tax) Clientele Theory
        Some investors benefit from special treatment in the tax law
        Summary: Allen, Bernardo and Welch (2000)
   Gugler and Yurtoglu (2003): expropriation problem
    present in Germany
   Zingales (1994): expropriation by large shareholders
    significant in Italy
   Bergström and Rydqvist (1990): NO in Sweden
   Barclay and Holderness (1989, 1992): NO in the U.S.
   Faccio et al. (2001):
       Systematic expropriation of outside shareholders in Western
        Europe and East Asia
       Extensive ownership pyramids
       Europe: other large shareholders contain the controlling
                 shareholder’s expropriation of minority shareholders
       Asia:    they collude in that expropriation
   Is the Poland like East Asia or like Western Europe?
    Literature: Gugler and Yurtoglu (2003)
   Analyze dividend announcements and pay-out
    ratios in Germany
   Look at the conflict between large controlling
    shareholder and minority shareholders
    arising from private benefits of control
   Dividends are device for small shareholders to
    limit rent extraction by controlling owners
   "Majority-controlled and unchecked" firms
    have the smallest target pay-out ratio
   "Majority-controlled and checked" firms have
    the largest target pay-out ratio
Motivation: Corporate Governance in CEE and
             Continental Europe
    DISPERSED ownership
      How to align incentives of management with those of
       atomistic shareholders?
    Control by a LARGE SHAREHOLDER
      Predominant   in Europe and East Asia (and in the Czech
      Shift
           from management-shareholder conflict to the one
       amongst shareholders themselves
      Faccio  et al. (2001): East Asian financial crisis in the
       late 1990s was to a large extent due to the presence of
       malfunctioning corporate governance structures
       based on a concentration of ownership with features
       of “crony capitalism”.
                Research Questions
   Functioning of the corporate governance in
    Poland via dividend policy
   Large shareholders have a dual impact on firms
    (Shleifer and Vishny, 1997):
      Strong incentive to monitor management to
       ensure that a firm's value is maximized
      Extract rents and enjoy the private benefits of
   Do majority shareholders divert profits (extract
    rents) from minority shareholders?
   How substantial the rent extraction is?
   Are minority shareholders able to preclude
    significant rent extraction?
             Evidence from Dividend Policy
   Results from the other studies: Dividend payout
    depends on CONCENTRATION and DOMICILE of
      Firms with a dominant majority owner pay dividends
       less often and their target payout ratio is small
      Firms with a majority owner and at least one strong
       minority owner pay dividends more often and the
       target payout ratio is large
       Typical setup -- Controlling for
            Investment opportunities
            Capital structure decisions
            Endogeneity of ownership with respect to performance
   Several levels of ownership concentration, several
    types of the single largest owner, and investigate the
    difference between domestic and foreign owners.
      “Expected”-- Policy Implications
   Not simply a matter of redistribution amongst
    shareholders only
   Corporate insiders choose to invest in projects with low
    or negative returns just because they create
    opportunities for expropriation
   Investment decisions are distorted and corporate
    growth is slower than it could be
   REGULATORS should
     Support the development of sound and
      transparent financial markets as they seem to
      be able to police dominant owners most
     Strengthen the rights of minority shareholders
    Data Problems & Estimation Technique
   Percentage of firms paying dividends (??)-Table 2
   Ownership endogenous with respect to
    performance, or endogeneity w.r.t. corporate
    governance index
   Construction of the TDI index in the context of
    transition economies (or new EU members), …
        practical issues – instrumental variables in tobit models.
        ?? Was not there a change in dividend taxation?? Any
        ?? using some legal ownership thresholds directly?
        Ownership variable
Another approach – robust check?
   How about to simply use Litner (1956) specification in
    two-stage setup:
   1) decision to pay dividends (0-1) probit model
   2) Litner model run as conditional ML (simply OLS for
    those that paid dividends)
   ----------
   It allows to add/consider IV variables in each stage.. 1)
    stage can be estimated by standard linear probability
    model (heteroskedasticity) and then use also IV without
    any problems.. See also -- Angrist, J.D. and Krueger,
    A.B. (2001).

       Angrist, J.D. and Krueger, A.B. (2001).“Instrumental variables
      and the search for identification: From supply and demand to
      natural experiments”, Journal of Economic Perspectives, 15, pp
   Lintner's specification with ownership structures

   Standard Control Variables
      Firm size, Leverage, Cash holdings
      Bank power (Bank loans / Total liabilities)
      Growth Opportunities (Industry level sales growth
       rate, etc.)
Ownership Structures: Variables Definition
   Concentration of ownership variables:

   Domicile
     Local,   Foreign
   Type of the owners
     State,   Financial, Industrial, Individual
                  Thank you!
            A let me invite you to:
FMA - Financial Management Association International
2008 FMA European Conference
4 June – 6 June 2008 Prague,
Czech Republic
Program Co-chairs:    Jan Hanousek, CERGE-EI
                      Michael Lemmon, University of Utah 2008

Program Committee Member Applic.: November 16, 2007
Completed Papers and Abstracts: December 3, 2007
Panel Discussion Proposals: December 3, 2007

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