The association between ownership concentration and payout behaviour: Evidence from South Africa

Rudie Nel,Lee-Ann Steenkamp,Nicolene Wesson

doi:10.4102/ac.v21i1.965

Rudie Nel, Lee-Ann Steenkamp + Show 1 more

Open Access

https://doi.org/10.4102/ac.v21i1.965

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Abstract

Orientation: The study investigated the association between ownership concentration and different payout methods of selected companies listed on the Johannesburg Stock Exchange (JSE) in South Africa for the financial reporting periods 2012 to 2019.Research purpose: The research objective was to investigate whether payout behaviour differed when low and high ownership concentration was compared.Motivation for the study: An understanding of the association between ownership concentration and payout policies is an important corporate governance aspect that could reveal the agency conflict between majority and minority shareholders. No previous South African empirical study has considered testing or investigating the two opposing agency-based hypotheses, namely the monitoring and rent extraction hypotheses, with reference to different payout methods.Research design, approach, and method: An empirical research design was followed, which is descriptive in nature. Descriptive statistics and a mixed-model analysis of variance were employed to describe the different payout methods – that is ordinary dividends, special dividends, capital distributions, additional shares, general share repurchases, and specific share repurchases – employed by companies listed on the JSE based on a distinction between low and high ownership concentration.Main findings: High ownership concentration was found to be associated with statistically significant lower ordinary dividends and capital distributions in support of the rent extraction hypothesis. Rent extraction highlights the agency conflict between majority and minority shareholders.Practical/managerial implications: Findings of the present study revealed agency conflicts that may be informative to those charged with corporate governance to help them resolve agency conflict.Contribution/value-add: This study is the first to consider the association between ownership concentration and payout behaviour in South Africa subsequent to the introduction of the dividends tax regime in 2012. The descriptive evidence submitted can serve as a basis for further explanatory research relating to ownership concentration and payout behaviour of companies.

Highlights

The ownership structure of a company, especially ownership concentration of large shareholders, is regarded as an important aspect of corporate governance that could influence company value (Faisal, Majid & Sakir 2020)
High ownership concentration is submitted as being associated with a lower payout in support of the rent extraction hypothesis. These findings suggest support for the rent extraction hypothesis in respect of payout policies, which is in line with previous literature from other developing countries (Besim & Adaoglu 2018; Faisal et al 2020; Gonzalez et al 2017; Thanatawee 2013)
The effect of ownership concentration on dividend policy has been considered in the literature under two opposing hypotheses, the monitoring hypothesis, and the rent extraction hypothesis

Summary

Introduction

The ownership structure of a company, especially ownership concentration of large shareholders, is regarded as an important aspect of corporate governance that could influence company value (Faisal, Majid & Sakir 2020). An investigation of the association between ownership concentration and dividend policy could underline the agency conflict between majority and minority shareholders in instances of rent extraction (Harada & Nguyen 2011). No previous South African study could be identified which has provided empirical evidence in support of either the monitoring hypothesis or rent extraction hypothesis based on different payout methods. South African tax reform instituted since 2012, namely a change from a company-level tax to a shareholder-level tax on dividends, provides a distinct setting for empirical investigation of the association between ownership concentration and payout methods. The objective of this study was to investigate whether payout behaviour of selected companies listed on the JSE in South Africa differed when low and high ownership concentration is compared. The empirical evidence (descriptive statistics and analysis of variance results) of this study is provided prior to submitting a final conclusion and suggesting areas for future research

Literature review

Conclusion

Findings

Ethical considerations