Abstract
<p class="Noindent"><span lang="EN-US">The dividend payout ratio and its volatility in firms listed on the Mexican Stock Exchange from the second quarter of 2009 to the first quarter of 2013 relate to corporate governance aspects. A structural equations model found that institutional investors avoid firms with high family intervention and prefer market risk despite greater volatility in dividend payouts. Similarly, the dividend payout volatility and market risk are positively related. Moreover, dividend payout is smaller in firms with high family intervention in management. Companies with a strong family control smooth their dividend payout and have a smaller number of institutional investors.</span></p>
Highlights
The celebrated Miller-Modigliani theorem states that in a frictionless market, the dividend and the financing policies are irrelevant (Miller & Modigliani, 1961)
Institutional investors would rather avoid companies with a Chief Executive Officer (CEO) family related to other board members, possibly because it can increase the probability of wealth expropriation to outsiders
Dividend payout ratios are lower in a firm where the CEO is related to other board members
Summary
The celebrated Miller-Modigliani theorem states that in a frictionless market, the dividend and the financing policies are irrelevant (Miller & Modigliani, 1961). Rozeff (1982) observes that insiders with significant stock ownership prefer small dividends to lower the taxes liability on capital gains Another hypothesis suggests that weak corporate governance in businesses where management has a high ownership stake contributes to the expropriation of minority shareholders, who receive reduced dividends. In Mexico, Chong et al (2009) found that the market rewards firms with good corporate governance by lowering their costs of capital, which provides better returns to their investors. Black (1976) proposed that companies with insider control provide less return variability because the management, whose human capital and investment portfolio may not be well-diversified, is risk-averse They will be interested in reducing business risk and smoothing dividends. If the CEO has related relatives on the board, the volatility of dividend payout ratios will be lower
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