Abstract
This study investigates the relationship between dividends and ownership structure for a panel of 330 large quoted UK firms. Controlling for unobserved firm‐specific effects, results indicate a negative relationship between dividends and ownership concentration. Ownership composition also matters, with a positive relationship observed for shareholding by insurance companies, and a negative one for individuals. These results are consistent with agency models in which dividends substitute for poor monitoring by a firm's shareholders but can also be explained by the presence of powerful principals who are able to impose their preferred payout policy upon firms.
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