Corporate Governance and Dividend Policy: Shareholders’ protection or expropriation?

Fodil Adjaoud, University of Ottawao
Walid Benamar, University of Ottawa Canada

ABSTRACT. This study investigates the relationship between corporate governance quality and dividend policy for a sample of large Canadian firms. As opposed to U.S. and U.K. corporate ownership in Canada is highly concentrated adding to a corporate governance regime that is largely voluntary, rather than mandatory.

We rely on the Globe & Mail annual corporate governance scores as an aggregate measure of firm level corporate governance quality. The effectiveness of the firm’s governance system is assessed through a global index score and sub-categories scores (board composition, shareholding and compensation policy, shareholder rights policy and disclosure policy).

Consistent with the agency motivation, our results show that firms with higher composite governance scores (stronger corporate governance) have higher dividend payouts. In particular, we document a positive relationship between shareholder rights policy and payout ratios.

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