Employee Rights and Dividend Policy Around the World

Abstract

This paper explores the relationship between employee rights and dividend policy across countries. Using labor right index as a proxy for agency costs of employees, we test the association between labor rights and dividend policies across countries. The empirical results reveal that labor rights are negatively related to firms’ decision to pay dividends and dividend payment amounts. This relationship is reinforced to be more salient in civil countries where shareholder rights are weak. The empirical results are robust by controlling for sample selection bias, test model specification, and a series of country-level control variables. This paper explores the relationship between employee rights and dividend policy across countries. Using labor right index as a proxy for agency costs of employees, we test the association between labor rights and dividend policies across countries. The empirical results reveal that labor rights are negatively related to firms’ decision to pay dividends and dividend payment amounts. This relationship is reinforced to be more salient in civil countries where shareholder rights are weak. The empirical results are robust by controlling for sample selection bias, test model specification, and a series of country-level control variables.