CORPORATE OWNERSHIP, EQUITY
AGENCY COSTS AND DIVIDEND POLICY:
AN EMPIRICAL ANALYSIS
A thesis submitted in fulfilment of the requirements for
the degree of Doctorate of Philosophy
Thanh Tan Truong
M.Bus & B.Bus
School of Economics, Finance and Marketing
Business Portfolio
RMIT University
November 2007
ii
TABLE OF CONTENTS
Page
CHAPTER 1: INTRODUCTION 1
1.1 Introduction 1
1.2 Research Scope 7
CHAPTER 2: CORPORATE OWNERSHIP, EQUITY AGENCY COSTS AND
DIVIDEND POLICY 11
2.1 Introduction 11
2.2 Corporate Ownership and Equity Agency Costs 13
2.2.1 Theoretical views 13
2.2.2 Empirical evidence 17
2.3 Corporate Ownership and Dividend Policy 33
2.3.1 Agency theories of dividend policy 33
2.3.2 Substitution between corporate ownership and dividend policy 38
2.3.3 Relation between large shareholders and dividend policy 42
2.4 Summary 49
CHAPTER 3: CORPORATE OWNERSHIP AND EQUITY AGENCY COSTS:
AN AUSTRALIAN STUDY 51
3.1 Introduction 51
3.2 Theoretical Framework 53
3.2.1 Corporate ownership 54
3.2.2 Managerial incentives 54
3.2.3 Boards of directors 56
3.2.4 Debt financing 57
3.3 Data and Sample 58
3.3.1 Data 58
3.3.2 Dependent variables – proxies for equity agency costs 59
3.3.3 Independent variables 60
3.3.4 Sample 63
3.4 Empirical Analysis 66
3.4.1 Univariate analysis 66
3.4.2 Multivariate analysis 69
3.4.3 Robustness tests 75
3.5 Summary 76
CHAPTER 4: LARGEST SHAREHOLDER AND EQUITY AGENCY COSTS:
AN INTERNATIONAL STUDY 82
4.1 Introduction 82
iii
4.2 Theoretical Framework 85
4.2.1. Large shareholders 85
4.2.2 Debt financing 87
4.2.3 Dividend policy 88
4.2.4 Research focus 89
4.3 Data and Sample 90
4.3.1 Data 90
4.3.2 Dependent variables – proxies for equity agency costs 92
4.3.3 Independent variables 94
4.3.4 Sample 97
4.4 Univariate Analysis 103
4.5 Multivariate Analysis 108
4.5.1 Largest shareholder and equity agency costs 108
4.5.2 Presence of the second largest shareholder 111
4.5.3 Other robustness tests 113
4.6 Summary 119
CHAPTER 5: LARGEST SHAREHOLDER AND DIVIDEND POLICY:
AN INTERNATIONAL STUDY 125
5.1 Introduction 125
5.2 Theoretical Framework 129
5.3 Data and Sample 132
5.3.1 Data 132
5.3.2 Sample 133
5.4 Multivariate Models 136
5.5 Analysis Results 139
5.5.1 Decision whether or not to pay dividends 139
5.5.2 How much to pay 141
5.5.3 Effect of dividend policy on largest shareholder 150
5.5.4 Other robustness tests 152
5.6. Summary 153
CHAPTER 6: CONCLUSION 156
6.1 Introduction 156
6.2 Key Findings 158
6.2.1 Corporate ownership and equity agency costs 158
6.2.2 Largest shareholder and dividend policy 161
6.3 Summary 162
APPENDIX 165
BIBLIOGRAPHY 182
iv
LIST OF TABLES
Page
Table 3. 1: Sample firm GICS industry classifications 58
Table 3. 2: Variable definition 62
Table 3. 3: Descriptive statistics 64
Table 3. 4: Correlation coefficients 65
Table 3. 5: Mean agency cost comparison 68
Table 3. 6: Multivariate analysis for asset utilisation (AUR) 73
Table 3. 7: Multivariate analysis for discretionary operating expense (DER) 74
Table 3. 8: Robustness test - firm size effect 78
Table 3. 9: Other robustness tests 80
Table 4. 1: Sample construction 91
Table 4. 2: Variable definition 94
Table 4. 3: Types of largest shareholder and OSIRIS independence indicators 99
Table 4. 4: Sample mean distribution 101
Table 4. 5: Agency costs and firm characteristics 105
Table 4. 6: Equity agency costs and ownership concentration 106
Table 4. 7: Equity agency costs and largest shareholder 107
Table 4. 8: Correlation coefficients 114
Table 4. 9: Multivariate analysis for asset utilization (AUR) 115
Table 4. 10: Multivariate analysis for discretionary operating expenses (DER) 116
Table 4. 11: Effect of the second largest shareholder on equity agency costs 117
Table 4. 12A: Robustness tests for asset utilisation (AUR) 121
Table 4. 12B: Robustness tests for discretionary operating expense (DER) 123
Table 5. 1: Distribution of largest shareholder 134
Table 5. 2: Variable definition 135
Table 5. 3: Descriptive statistics 138
Table 5. 4: Largest shareholder and dividend decision 143
Table 5. 5: Univariate analysis – largest shareholder and dividend payout 146
Table 5. 6: Largest shareholder and dividend payout - all firms 147
Table 5. 7: Largest shareholder and dividend payout - dividend-paying firms 148
Table 5. 8: Interaction between largest shareholder and dividend payout 155
v
LIST OF APPENDICES
Page
Appendix 3. 1: Descriptive statistics 164
Appendix 4. 1: OSIRIS independence indicator 166
Appendix 4. 2: Largest ownership distribution 167
Appendix 4. 3: Firm size proxy effect 168
Appendix 4. 4: Country analysis – asset utilisation (AUR) 169
Appendix 4. 5: Country analysis – discretionary operating expenses (DER) 171
Appendix 4. 6: Univariate analysis 173
Appendix 5. 1: Largest shareholder and dividend payout 173
Appendix 5. 2: OSIRIS independence indicators and dividend payout 175
Appendix 5. 3: Largest shareholder and dividend payout - all firms 176
Appendix 5. 4: Largest shareholder and dividend payout - dividend-paying firms 177
Appendix 5. 5: Largest shareholder and dividend payout – country analysis 178
Appendix 5. 6: Other robustness tests 179
Appendix 5. 7: Interaction between dividend payout and largest shareholder 180
Appendix 5. 8: Alternative dividend payout proxies – DivA and DivM 181