Corporate governance, life cycle, and payout precommitment: An emerging market study

Abstract

AbstractWe analyze the role of firm‐level corporate governance in determining the precommitment payout policy of emerging market firms and investigate whether there is a precommitment life‐cycle effect. Unlike previous studies of U.S. firms, we find evidence of precommitment only among relatively well‐governed firms, which combine good governance with large dividend payouts to shareholders and large debt‐related repayments to creditors. We also document a strong precommitment life‐cycle effect. Firms in the growth and mature stages of their life cycle tend to use both debt and dividends to precommit to investors, with an increasing proportion of dividends in total payout measures. Our results are robust to an array of control variables, alternate payout proxies, market setting, and firm‐level corporate governance, and it addresses potential endogeneity concerns in the sample.