Corporate Sustainable Management, Dividend Policy and Chaebol

Hyunmin Oh,Sambock Park

doi:10.3390/su13137495

Hyunmin Oh, Sambock Park

Open Access

https://doi.org/10.3390/su13137495

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Abstract

This study empirically examines the relationship between corporate sustainable management (CSM) and dividend policy. Among the various motivations related to dividends, this study examines the relationship between CSM and dividend policy based on the agency and signaling theory. After examining the relationship between CSM and dividend policy, we investigate whether belonging to a large business group (chaebol group) has a significant effect on the relationship between CSM and dividend policy. The analysis period is from 2011 to 2018, and the ESG ratings of the Korea Corporate Governance Service are used as proxies for CSM. The empirical results show that CSM and dividends have a significant relationship in the positive direction. This means that firms with excellent CSM activities have higher dividend levels than those that do not. Furthermore, the association between CSM and dividends is more negative for firms belonging to a chaebol group. This indicates that the positive relationship between CSM and dividends in a firm that belongs to a chaebol group is weakened. This means that the relationship between CSM and dividends in the group belonging to the chaebol group is weakened. It belongs to the group of conglomerates, meaning that the relationship between the amount of dividends and CSM weakened. Our study focuses on CSM as a determinant of dividends, and examines the effects of belonging to a chaebol group in the relationship between CSM and dividends. Given that resolving the interest incompatibility between investors and managers is the focus of corporate governance, dividend policies can be used as a method for resolving the interest incompatibility between investors and managers.

Highlights

A dividend policy is a financial decision to divide the business performance of a firm into dividends, distributed to shareholders and internal reserves for future reinvestment.The question of how the dividend policy affects corporate value has been of interest for many scholars [1]
This study suggests that corporate governance through whether or not a firm belonging to a chaebol group works as an alternative to reducing the agency problem in the relationship between corporate sustainable management (CSM) and dividends
The average of whether or not the firm belonged to a chaebol group (CHAEBOL) was 0.258, indicating that about 26% of the samples belonged to a large business group

Summary

Introduction

A dividend policy is a financial decision to divide the business performance of a firm into dividends, distributed to shareholders and internal reserves for future reinvestment.The question of how the dividend policy affects corporate value has been of interest for many scholars [1]. Miller and Modigliani [2] put forth the dividend irrelevance theory, which states that dividend policies are irrelevant to corporate value under the assumption of a perfect capital market, where rational investors exist. Dividend irrelevance theory was published, various studies in which the assumption of a perfect capital market was mitigated have been conducted. Jensen and Meckling [3] argued that since the lower the internal equity ratio, the higher the agency cost, the monitoring function of the external capital market can be strengthened by increasing dividends. Fama and Jensen [4] and Jensen [5] claimed that dividend policy could be used as a means to reduce agency costs for managers. Signaling theory indicated that under information asymmetry, managers can use dividends to deliver positive information on corporate prospects to the capital market [6]. Kim et al [7] and Grullon et al [8] contended that dividends were used as a means of signaling effect

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