Abstract
This paper examines the relation between the ownership-control discrepancy and dividend policy of Tunisian firms. Using data of 44 Tunisian firms, the current study provides evidence in support of the expropriation hypothesis. The empirical results show that the largest shareholder maintains a controlling power measured by Banzhaf index in excess of his cash flow rights which, leads to a low level of dividend payout ratios. In contrast, when the control power is shared between multiple large shareholders, Tunisian firms are likely to pay large dividends.
Highlights
The corporate finance literature has traditionally focused on mitigating agency conflicts between managers and shareholders due to a separation of ownership and control (Jensen and Meckling 1976)
Recent empirical studies have shown that in most countries publicly traded firms often have large shareholders, giving rise to another agency conflict between controlling shareholders and minority shareholders ( LaPorta et al 1999; Claessens et al (2000, 2002); Faccio and Lang, 2002; Barca and Becht, 2002; Masulis et al 2009; Jong et al 2011). This observation contrasts with the Berle-Means thesis of the “widely held corporation” and indicates that several firms with controlling shareholders become more widespread through many countries around the world.The potential problems involved in large shareholders representing their own interests become aggressive if their control rights are significantly more important than their equivalent level of cash flow rights
It complements the existing empirical literature in two ways. (i) First, we investigate the effect of separation between ownership and control on Tunisian firms’ dividend policy. (ii) Second, we advocate the use of Banzhaf index, derived from game theory as a relevant measure of voting power in the analysis of the relationship between dividend and control of the largest blockholder for each class of ownership-control structure
Summary
The corporate finance literature has traditionally focused on mitigating agency conflicts between managers and shareholders due to a separation of ownership and control (Jensen and Meckling 1976). As noted by Bebchuk et al(2000) such a radical separation of control and cash flow rights can occur in three main ways: (i) through dual-class share structures, (ii) stock pyramids, and (iii) cross-ownership. Regardless of how this separation is defined, the authors consider this pattern of ownership as a controlling-minority structure (CMS) because it allows a large shareholder to control company’s decisions while holding a disproportionally small fraction of cash flow rights. While a block of 25% in a company with a majority shareholder may not give its holder significant influence (Trojanowski and Renneboog, 2005)
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