Dividend Policy, Corporate Control and the Tax Status of the Controlling Shareholder

Abstract

This paper studies the impact of the concentration of control, the type of controlling shareholder and the dividend tax preference of the controlling shareholder on dividend policy for a panel of 220 German firms over 1984-2005. In line with the agency model, we find a positive relation between family control and dividend payouts at intermediate levels of control and a negative relation at high levels of control. We further document that corporate control is associated with higher dividend payouts if an industrial or commercial corporation is the majority shareholder of the company. Finally, the results provide some evidence that the tax preference of the largest shareholder matters for dividend payout decisions.