Exploring the effects of family control on dividend policy—Evidence from Canada

Abstract

AbstractThis study examines if publicly listed family‐controlled corporations (hereafter called FCCs) have more differential effects on cash dividend policy (in both willingness to pay and amounts paid) than non‐FCCs. While the literature provides mixed conclusions, this study focuses on the theoretical underpinning that FCCs’ unique behavior model with objective to preserve their socio‐emotional wealth (SEW) tend to protect their highly undiversified invested capital, operate conservatively and conserve corporate wealth for future generations. As a result, FCCs, especially those with large size and large accumulated profits, would pursue type II expropriative agency motive by lowering cash dividend payout. Nevertheless, when FCCs operate for long years, their transgenerational sustainability intentions and reputational concerns stemmed from the SEW will induce FCCs to endeavor non‐financial goals. This study further finds evidence that FCCs with longer years, and accumulated large retained earnings and size are willing to align with minority shareholders’ interests by being more willing to pay more cash dividends. However, comparing to their non‐FCC counterparts, the heterogeneous variable of FCCs age interacts with retained earnings and size to cause larger positive effects in willingness to pay more cash dividends; and cash dividend payouts.