Corporate Governance and Dividend Payout Policy: Beyond Country-Level Governance

Abstract

We address the mixed empirical findings on how corporate governance affects dividend payout policy by analyzing a large sample of firms from 30 countries. Our results indicate that firms with better firm-level governance pay more dividends, even when we control for country-level governance. However, this relation is only pronounced in countries with low shareholder rights. In addition, we find that when shareholder rights index is high, firm-level governance is unrelated to dividend payout. Our results are robust to the choice of firm-level governance index, the inclusion of the originality of law, culture, creditors’ rights, alternative measures of dividend payout, the hierarchical modeling technology, and approaches to address endogeneity concerns. We also find that dividend payments are associated with higher firm value, and investors positively value the dividend payments of poorly governed firms.