The relationship between dividend payout and corporate governance along the corporate life-cycle

Abstract

This study explores the relationship between the quality of corporate governance and corporate dividend payout at different stages of the corporate life-cycle. In a sample of 220 firms from 21 emerging market countries, I show that the outcome model of dividends, which predicts that dividend payout increases in the strength of shareholder rights, prevails all along the corporate life-cycle. In a final series of tests, I show that this relationship holds only in instances where corporate governance and creditor rights are strong. Hence, the agency cost of equity and debt version of the outcome model of dividends holds at all stages of the corporate life-cycle. Finally, I find no evidence in support of the equity-only version of the substitution model of dividends.