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Does the Existence of Large shareholders Substitute Legal Investor Protection?

Evidence from Dividend Payout

Morad Abdel-Halim1 and Adel Bino2

Abstract

We present a direct test of the relationship between large shareholders’ ownership and

dividend payout in a weak legal investor protection environment while recognizing the

conditionality of this relationship on firm’s growth opportunities. Based on previous research, we

formulate four mutually exclusive hypotheses for the relevance of large shareholders’ ownership

stake that differ in terms of large shareholders’ incentives. We find a significant negative

relationship between the percentage of firm’s capital owned by largest shareholders and dividend

payout in a way that exacerbates the agency problem between large and minority shareholders.

This result remains robust to different proxies for the dividend behavior and different model

specifications.

2015

1
Economist, General Budget Department, Ministry of Finance.
2
Associate professor of Finance, Department of Finance, School of Business, The University of Jordan.
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Introduction:

It is well documented that in countries where legal protection of investor rights is weak,

corporate ownership structure is more concentrated (La Porta et al. 1998, LaPorta et al. 1999, and

Claessens et al. 2000, among others) and dividend payout ratios are significantly lower (La Porta et

al. 1998, La Porta et al. 1999, La Porta et al. 2000, and Brockman and Unlu, 2012). However, the

firm level evidence on the relationship between ownership structure and dividend payout remains

unclear. We argue that this is due to that both the extant empirical research and the proposed

explanations overlook the interaction between large shareholder’s ownership stake and firm’s

growth opportunities despite growing evidence that indicates the existence of such interaction. So,

we focus on the relation between ownership structure and dividend payout conditional on firm’s

investment opportunities.

Although concentrated ownership structure is prevalent in most of the countries regardless

of the quality of the country’s legal system, the incentives of controlling shareholders differ not

only across different legal systems but, more importantly, across firms when the country’s legal

system is inefficient in protecting investor rights (Durnev and Kim, 2005, Black, de Carvalho, and

Gorga, 2012). The peculiarity of weak legal investor protection has been noted both theoretically

and empirically. Most notable is the lack of any clear association between firm’s dividend payout

and its investment opportunities. La Port et. al. 2000, show that in common law countries, growing

firms pay lower dividends while in civil law countries where corporate ownership is more

concentrated, growing firms may pay lower or higher dividends. A possible explanation for this

latter result is provided by Gomez, 2001 who shows that the absence of legal restrictions that limit

large shareholders’ ability to take self-serving actions does not necessarily mean that they will do

so. When such restrictions are absent, large shareholders have greater leeway in choosing between

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using firm’s earnings to maximize shareholders’ wealth and using them to extract private benefits.

Thus, not paying dividends can be the result of large shareholders’ decision to reinvest firm’s

earnings in value adding projects or using them to entrench themselves. Disentangling these two

results requires conditioning large shareholder’s decision on the firm’s growth opportunities.

To the extent that large shareholder's ownership stake represents his ability to expropriate

minority shareholders, the behavior of firm’s dividend payout ratio serves as an indicator of

whether the controlling shareholder is diverting firm’s resources towards extracting private

benefits or using firm’s earnings to maximize shareholders’ value.3 The controlling shareholder's

choice depends not only on his ownership stake but also firm’s growth prospects. Thus, previous

research controls for firm’s investment opportunities when examining the relationship between

firm’s ownership structure and its dividend payout. We argue that this treatment introduces

ambiguity in understanding such relationship when legal protection of shareholder rights is weak

because the absence of legal deterrence of controlling shareholder’s self-serving actions implies an

interaction between firm’s capital owned by large shareholders and its investment opportunities

that cannot be captured by merely controlling for firm’s investment opportunities. Our empirical

analysis enables us to resolve this ambiguity by noting that firm's growth opportunities can result

in nonlinear relationship between firm's capital owned by large shareholders and its payout ratio in

weak investor protection environments when large shareholders serve as monitors of

management’s actions.

Based on previous research, we formulate four mutually exclusive hypotheses for the

relevance of firm’s ownership structure in a weak investor protection country as far as dividend

payment is concerned. If firm’s ownership structure is irrelevant, then, differences in dividend

3
Faccio et. al ( 2001) find evidence of expropriation by controlling shareholders of minority shareholders based on the
relationship between dividend behavior and ownership and control structure.
3
payout ratios across firms cannot be attributed to differences in ownership concentration

(Ownership structure irrelevance hypothesis). Such differences in payout may, however, still be

due to differences in firms' investment opportunities. La Porta et al. 2000, argue that firms may

pay larger dividends in order to build a reputation of protecting minority shareholders’ rights to

substitute the absence of legal measures. This argument applies more to firms that have higher

growth opportunities and/or larger ownership percentage by large shareholders because these firms

are in more need to build such reputation (substitution hypothesis). If large shareholders’ interests

are aligned with those of minority shareholders and, therefore, they provide close monitoring of

managers’ actions and decisions, then, firm’s ownership concentration and its dividend payout

ratio should be negatively (positively) related when the firm is endowed with ample (poor)

investment opportunities (monitoring hypothesis). Last, if large shareholders are entrenched and

behave in rent-seeking manner, then, their ownership percentage would be negatively associated

with its dividend payout ratio regardless of firm's investment opportunities (entrenchment

hypothesis).

We test the empirical predictions of the above hypotheses using data from Jordan as it is

one of the emerging markets where commercial laws are not only poor but also inefficiently

enforced. Yet, the Jordanian stock market is one of the emerging markets that are closest to

becoming efficient and has relatively the lowest volatility (Lagoarde-Segot, 2009). Jordan is also

one of the Middle East and North African (hence, MENA) countries from where empirical

evidence on corporate ownership structure and dividend behavior is limited. Thus, this paper

contributes to understanding the implications of firm-level corporate governance mechanisms in

emerging markets in the absence of legal corporate governance provisions.

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Using several econometric techniques that account for unobservable firm-specific factors,

we find that ownership concentration is negatively related with dividend payout ratio. This result is

further emphasized as this negative relationship is robust for controlling for firm’s investment

opportunities with insignificant parameter for the interaction between ownership concentration and

the amount of investment opportunities. Thus, these results are consistent with the predictions of

the entrenchment hypothesis since firms disgorge less dividends as the percentage of firm’s capital

owned by large shareholders increases regardless of firm’s growth opportunities. In other words,

dividend payout is used by controlling shareholders to exacerbate the agency problem with

minority shareholders rather than as a mechanism to mitigate possible conflicts of interests.

Furthermore, we find that the existence of multiple large shareholders renders the negative

relationship between ownership and dividend payout even more significant.

The contributions of this paper are twofold. First, we show that ignoring the conditional

nature of the impact of firm’s ownership structure on its dividend payout can result in misleading

conclusions. Second, we show that the widely accepted notion of concentrated ownership being a

substitute for legal measures that are designed to protect investor rights is not true in each and

every weak legal governance country.

The paper proceeds as follows: in the next section we present an overview of the

institutional governance in Jordan. In section three, we present the literature review and develop

our hypotheses. Section four describes the data and methodology. Section five presents the

empirical results and section six concludes the paper.

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Institutional Governance and Corporate Ownership in Jordan

Compared to developed and other emerging markets, Jordan is quite different. The legal

and economic structures in Jordan are not properly institutionalized to better arrange principal-

agent relationships. Despite the government’s efforts to improve the country’s legal environment,

there are many loopholes and overlaps in the commercial laws enacted by the different

jurisdictional institutions and the judicial and court system is weak and ineffective in resolving any

disputes that may arise. Also, market mechanisms that can discipline corporations and encourage

value-maximizing actions by corporate managers and insiders like mergers and acquisitions and

management or leveraged buyouts are virtually nonexistent. Moreover, monitoring of firm’s

management by active institutional shareholders or debt holders is negligible as active and expert

institutions in managing equity portfolios who might seek taking over inefficiently managed firms

are absent and long term debt financing by corporations whether in the form of public or bank debt

is rather limited. Compared to other emerging markets, on the other hand, Lagoarde-Segot, (2009)

finds that while emerging markets are generally inefficient, the Jordanian equity market is one of

those emerging markets that are moving rapidly towards information efficiency with the lowest

market volatility. Thus, the Jordanian market offers an ideal setting for testing the association

between corporate ownership structure and dividend policy in an emerging market where minority

shareholders’ rights protection is weak because, unlike previous research, it enables us to focus on

the monitoring role of large shareholders implied by the firm’s dividend payout behavior as

alternative corporate monitoring mechanisms including legal measures, creditors, competing

management teams, or active institutional shareholders are absent.

The corporate ownership structure in Jordan is highly concentrated in the hands of few

shareholders who, in most of the cases, are families. These controlling families also provide

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members of the board of directors and managers. Bino et al. 2016 show that although indirect

control mechanisms (like cross holding and pyramids) are used in Jordan, they only result in small

deviations between ownership and control. This enables us to focus on the cash flow rights as the

main mechanism of controlling the firm but makes us at the same time unable to use the deviations

between ownership and control to measure large shareholder’s ability to expropriate minority

shareholders.

Literature Review and Hypotheses Development

The classical agency theory argues that corporate insiders have the incentive to use firm’s

resources to extract private benefits rather use them to maximize shareholder value or return firm’s

cash to owners when no feasible uses of such funds are available (Jensen and Mekling, 1976).

Insider’s ability to do so is not irrelevant of the quality of the country’s legal environment because

legal systems that effectively protect investor rights increase insider’s personal cost of diverting

firm’s resources to serve her self-interests by increasing the possibility of being litigated for theft.

Implicit in this traditional view of the agency problem is the assumption that corporate ownership

and control are aligned. Recent research shows that this is not the case in many countries

especially the less developed countries (La Ports et. al, ). Ownership and control can deviate

from each other when firms are owned using shares with superior voting and/or indirect ownership

mechanisms like cross holding ( ) and/or pyramids ( ). The indirect control mechanisms are

more frequently used in counties with weak minority shareholders’ protection laws ( ). When

corporate ownership and control are separate and ownership or control and management are

aligned, large shareholders’ incentives may deviate from those of minority shareholders’ leading to

conflicts of interest between the two types of shareholders (i.e., tunneling).

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The existence of conflicts of interest between large and minority shareholders does not

necessarily imply that large shareholders will expropriate minority shareholders’ rights because

large shareholders can choose not to do so even when the legal system is weak in terms of

preventing controlling shareholders from taking self-serving actions (Gomes, 2000). In fact, the

existence of large shareholders has been found able to resolve the conflict of interest with minority

shareholders and, thus, provide them the protection that is not provided by the legal system. Such

evidence comes from both Eastern and Western Europe (Faccio et. al 2001, Gugler et. al 2014). An

exception is the East Asian countries where large shareholders intensify rather than mitigate

conflicts of interest (Faccio et. al 2001).

The evidence on the role of large shareholders in mitigating the agency problem with

minority shareholders is based mainly upon its association with firm’s dividend payout.

Furthermore, in countries with effective legal protection of investor rights, dividend payout ratio

decreases as the firm grows while in countries with weak legal investor protection, the association

between payout ratio and firm’s growth produces mixed results (La Porta et al.2000). Therefore, in

weak investor protection environments, corporate governance provisions taken voluntarily by

firms can be better able to explain differences in dividend payout behavior. 4 In this paper, we

investigate the association between ownership structure and dividend payout ratio on the firm-level

in a country where minority shareholders’ rights protection is weak. Unlike previous research, we

allow the ownership concentration to interact with firm's growth opportunities instead of simply

controlling for it.

In this section, we formulate four mutually exclusive hypotheses as far as the association

between firm’s ownership structure and its dividend policy.

4
Klapper and Love (2004) show that firm-level corporate governance provisions are more important in weak investor
protection environments. Black et al (2012) call for flexible approach to governance that allows for firm characteristics
to determine the effectiveness of governance mechanism rather than merely relying on country-specific characteristics.
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Ownership structure irrelevance hypothesis:

If neither firm’s investment opportunities nor its ownership structure can explain

differences in dividend payout ratios among firms, then

H1: Firm’s dividend policy is irrelevant of its investment opportunities or ownership structure.

Ownership structure relevance hypotheses:

Substitute model:

La Porta et. al, 2000 argue that The substitute model predicts that in countries where

investor protection is weak, firms need to build reputation of protecting investor rights by paying

dividends on regular basis. Furthermore, firms with more investment opportunities are in more

need to build such reputation. On the firm level, Jiraporn and Ning, 2006, find evidence of

substitution in the US market.

We argue that firms with larger ownership concentration are more likely to have large

shareholders who are able to expropriate minority shareholders, then

H2: Regardless of firm’s investment opportunities, firms with larger ownership concentration will

pay more dividends.

Monitoring hypothesis

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In doing so, we account for the magnitude of firm’s growth opportunities and at the same time

allow it to interact with the ownership stake of the large shareholders.

If the existence of large shareholders aligns their interests with those of minority

shareholders at which time large shareholders provide monitoring in a way that guarantees that

management actions and decisions are aimed at shareholder value maximization that is increasing

in large shareholders’ ownership stake, then,

H3: When firm’s investment opportunities are high (low), firms with larger ownership

concentration will pay less (more) dividends.

Entrenchment hypothesis

If large shareholder’s objective is to expropriate minority shareholders’ rights, then,

H4: Firms with higher ownership concentration will pay less dividends regardless of their

investment opportunities.

Table 1: This table shows the predicted signs for ownership concentration and the control variables.

Ownership Structure Substitution Monitoring Entrenchment


Irrelevance Hypothesis Hypothesis Hypothesis Hypothesis

Investment opportunities Negative Positive Negative Insignificant


Negative when
investment
opportunities are
high.
Ownership structure Insignificant Positive Negative
Positive when
investment
opportunities are
low
Interaction between
investment opportunities Positive Negative Insignificant
and ownership structure
Size Positive Positive Positive Positive

Leverage Negative Negative Negative Negative

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Performance Positive Positive Positive Positive

Cash balance Positive Positive Positive Positive

Data and Methodology

The sample includes only non-financial firms that were publicly listed and traded on

Amman Stock Exchange (ASE) over the period 2004-2013. Financial firms are dropped because,

at least, the leverage ratio of financial firms varies greatly from non-financial firms in addition to

the nature of their financial statements due to the nature of their business. The sample period

includes the year 2009 in which the adverse impact of the global spike in inflation that

accompanied the financial crisis of 2008 was felt as witnessed by the sudden negative growth

(11%, on average) in sales revenues of the non financial corporations.

The initial sample is made of 155 corporations while the final sample firms are 89. We

exclude thirty nine firms because they had insufficient or incorrect financial statements data or had

no ownership data. We also exclude five other firms because they are controlled by the

government. The remaining twenty two firms were dropped for various reasons including: capital

reduction, capitalization of profits and distributing free shares, fluctuations in foreign exchange

rates in some countries and also the prices fluctuations of some related global industrial

commodities, financial excesses and managerial problems in addition to increase consumption and

selling expenses and problems with the banks and lenders.

Following BØhren et al (2012), the payout ratio is calculated as dividend per share divided

by the earnings available to the stockholders. As measures of firm’s corporate governance

mechanism, we use the percentage of firm’s capital owned by largest three or five owners as proxy

for ownership concentration following Claessens et al (2000), and CEO duality measured as

dummy variable that is equal to 1 if the CEO is also the chairman of the board of director and zero
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otherwise following Larcker et al (2011), Masulis et al (2007). We control for the expected growth

in firms operations and measure it, first, as the relative increase in the book value of assets during

the year, (BØhren et al, 2012). Asset growth is the relative increase in total assets over the year,

and second, as Tobin’s Q measured as sum of market value of equity minus book value of equity

plus total assets divided by total assets. We also control for firm’s performance measured first, as

the return on assets and second, as the return on equity (Brav et al 2008, Cremers and Nair 2005,

Giroud and Mueller 2011), firm size measured as the log of book value of total assets ( Masulis, et

al 2007 and Xavier and Mueller 2011, BØhren, et al, 2012), and leverage measured as a firm’s

book value of long-term debt and short-term debt (total debt) divided by its book value of total

assets, (Masulis, et al 2007 and BØhren, et al 2012).

We use the following specification to model firm’s dividend behavior as a function of

measures of ownership structure and the control variables:


k
Divit    1 Ownconit   2 SGit   3 SGI it   4 ( SGI it * Ownconit )    k Controlsit   it
1

Where:

Divit : is the dividend payout ratio,


Ownconit : is the ownership percentage of the largest shareholder,


SGit : is firm’s growth in sales calculated as the logarithm of current year sales divided by

previous year sales.

SGI it : is a dummy variable that is equal to one if the firm’s growth in sales was higher than

the industry median growth in sales in the particular year and zero otherwise.

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Controlsit : is a matrix of control variables that include: firm’s size measured as the natural

logarithm of total assets, firm’s performance measured as return on equity or return on

assets, firm’s leverage measured as total liabilities divided by total assets, and firm’s cash

status measured as year ending cash balance divided by total assets.


 it : is a random disturbance term.

Empirical results:

Robustness Tests:

In this section, we run several robustness checks to verify the validity of our results. First,

our results may be sensitive to the way dividend payment is measured. Therefore, we repeat the

analyses by measuring ownership concentration by the percentage of firm’s capital owned by the

largest three, instead of five, shareholders. The results (not reported) are qualitatively similar to

those reported in tables 4 and 5 except that the parameter estimates for the ownership variable are

slightly smaller. We also run the tobit regression using three other measures of dividend payment

which are dividends divided by firm’s book value of equity, market value of equity, and sales,

respectively. The results of tobit regression in Tables 6 show that the negative relationship between

ownership concentration and dividend payment is robust to the different ways of measuring the

dividend payment.

One more issue we address here is the possibility that our results of negative relationship

between ownership concentration and payout ratio might be driven by the sample of firms that do

not pay dividends at all. Therefore we exclude 21 firms that did not pay any dividends during the

sample period and rerun the regressions.

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Policy. Journal of Banking & Finance.

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La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000) (a). Investor Protection and
Corporate Governance. Journal of Financial Economics, 58, 3-27.

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La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (2000) (b). Agency Problems and
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Figure 1: Shows mean payout ratio for all firm-years across the four categories of the
largest shareholder’s ownership percentage shown in the horizontal axis.

Figure 2: shows the mean payout ratio across the Figure 3: shows the mean ownership concrntration
growth categories shown in the horizontal axis. across the growth categories shown in the horizontal axis.

Table 1: Descriptive Statistics.


Payout ratio is dividend payout ratio calculated as dividends per share divided by earnings per share. Div To Sales
is firm’s dividends divided by sales. Div To BV is firm’s dividends divided by book value of equity. Div To MV
16
is firm’s dividends divided by market value of equity. Largest is t he percentage of firm’s capital owned by the
largest shareholders. Own3 is the percentage of firm’s capital owned by the largest three shareholders. Own 5 is
the percentage of firm’s capital owned by the largest five owners. Size is firm’s size measured as the log of book
value of total assets. ROE is return on equity calculated as net income divided by total assets. ROA is return on
assets calculated as net income divided by total equity. Leverage is calculated as total debt divided by total assets.
Tobin’s q is calculated as market value of equity minus book value of equity plus total assets divided by total
assets. SG is the growth in firm’s sales measured as the logarithm of (current year sales divided by previous year
sales). CBA is firm’s cash status measured as year ending cash balance divided by total assets.

Mean Median St. Div Min Max

Payout Ratio 0.37 0.00 0.56 0.00 3.39

Div To Sales 0.05 0.00 0.01 0.00 1.35

Div To BV 0.04 0.00 0.08 0.00 1.27

Div To MV 0.02 0.00 0.03 0.00 0.44

Largest 0.34 0.31 0.19 0.06 0.99

Own3 0.52 0.54 0.21 0.06 0.99

Own5 0.56 0.61 0.21 0.06 0.99

Size 7.31 7.27 0.62 5.67 9.25

ROE 0.03 0.05 0.18 -1.11 0.85

ROA 0.04 0.04 0.12 -0.41 0.91

Leverage 0.33 0.29 0.21 0.00 0.93

Tobin’s q 1.41 1.22 0.68 0.06 4.56

SG 0.02 0.03 0.19 -1.42 1.24

CBA 0.06 0.02 0.11 -0.38 0.95

17
Table 2: Correlation Analysis. All variables are as defined earlier. *, **, *** denote significance at the 10%, 5%and 1% levels, respectively.
CBA Leverage Tobin’s q SG ROE ROA Size Own5 Own3 Largest Div To MV Div To BV Div To Sales Payout

Div To Sales
.522**

Div To BV
.602** .500**

Div To MV
.776** .552** .615**

Largest
.000 .066 .064 -.035

Own3
.844** .001 .113** .109** -.047

Own5
.958** .732** -.024 .085* .109** -.053

Size
.022 .081* .023 .210** .313** .214** .227**

ROA
.311** .107** .133** .123** .409** .512** .308** .304**

ROE
.773** .299** .063 .090* .086* .392** .413** .303** .311**

SG
.089* .043 .008 .017 .015 .008 -.035 -.020 -.035 -.062

Tobin’s q
.055 .267** .291** .144** .259** .243** .133** .112** .386** .307** .132**

Leverage
-.154** -.013 -.268** -.099** .326** -.059 -.039 -.053 -.049 -.015 -.307** -.109**

CBA
-.279** .389** .030 .287** .256** .079* .207** .205** .090* .249** .391** .308** .198**

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Table 3: Descriptive statistics (Zero v.s Non-Zero Payout Firms).
All variables are as defined earlier. Mean difference tests are T-tests while median differences
are Wilcoxson signed rank tests. *, **, *** denote significance at the 10%, 5%and 1% levels,
respectively.

Difference Non Zero Div Zero Div

356 425 No. of firm-years

Median. Mean. Median Mean Median Mean


Diff Diff

-0.79*** -0.82*** 0.79 0.82 0.00 0.00 Payout Ratio

-0.08*** -0.11*** 0.08 0.11 0.00 0.00 Div to sales

-0.07*** -0.09*** 0.07 0.09 0.00 0.00 Div to BV

-0.05*** -0.05*** 0.05 0.05 0.00 0.00 Div to MV

0.00 0.02 0.30 0.33 0.31 0.35 Largest

0.03 0.02 0.60 0.55 0.63 0.57 Own5


0.02 0.02 0.54 0.51 0.55 0.53 Own 3

-0.28*** -0.41*** 7.42 7.54 7.14 7.12 Size

-0.11*** -0.17*** 0.10 0.12 -0.01 -0.05 ROE

-0.07*** -0.10*** 0.07 0.10 0.00 -0.01 ROA

0.09*** 0.05*** 0.24 0.30 0.33 0.35 Leverage

-0.25*** -0.32*** 1.35 1.59 1.10 1.26 Tobin’s Q

-0.08*** 0.08*** 0.10 0.11 0.02 0.19 SG

-0.04*** -0.06*** 0.05 0.09 0.01 0.04 CBA

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Table 4: Panel A shows the results for the association between ownership concentration and dividend payout. The
dependent variable in all specifications is firm’s dividend payout ratio except in the logit regression where the
dependent variable is defined as a dummy variable that is equal to 1 if the firm paid dividends in the particular year
and zero otherwise. Alone is a dummy variable that is equal to one if the largest shareholder is the only shareholder
who owns at least 5% of the firm’s capital and zero otherwise. All other variables are as defined earlier. T-statistics
are calculated using White Heteroskedasticity robust standard errors. *, **, *** denote significance at the 10%, 5%,
and 1% levels, respectively.
Logit Tobit Fixed Effects Fixed Effects Pooled Variables

-9.53*** -2.80*** -0.66*** -0.99** -0.67*** Constant

-1.54*** -0.61*** -0.22*** 0.16 -0.22*** Largest

-0.28 0.03 -0.04 -0.02 -0.05 SG

1.28*** 0.42*** 0.16*** 0.19*** 0.16*** Size


ROA
16.91*** 2.63*** 0.98*** 0.40* 0.95***
Tobins q
0.09 -0.01 -0.01 -0.01 -0.004

-1.35** -0.84*** -0.30*** -0.26*** -0.31*** Leverage

2.42** 0.74** 0.45** 0.60** 0.44** CBA

-0.003 0.07 0.01 0.09 0.01 Alone


No Yes Firm effect
Yes No Time effect
(0.30) 0.14 0.32 0.14 Adjusted (Pseudo) R2

20
Table 5: The association between growth in sales and dividend payout. The dependent variable in all specifications
except in the logit regression is firm’s dividend payout ratio. In the logit regression, the dependent variable is
payment of dividends measured as dummy variable that is equal to 1 if the firm paid dividends in the particular year
and zero otherwise. SGI is a dummy variable that is equal to 1 if the firm’s growth in sales was higher than the
industry median growth in sales for all firms in the particular year and zero otherwise. SGIOWN is the interaction
term calculated as the product of SGI and largest. All other variables are as defined earlier. T-statistics are calculated
using White Heteroskedasticity robust standard errors. *, **, *** denote significance at the 10%, 5%, and 1% levels,
respectively.

Logit Tobit Fixed Effects Fixed Effects Pooled Variables

-9.47*** -2.81*** -0.65*** -0.97** -0.67*** Constant

-1.89** -0.57* -0.22* 0.13 -0.21* Largest

-0.60 -0.01 -0.01 -0.03 -0.03 SG

0.03 0.06 -0.02 -0.02 -0.01 SGI

0.55 -0.08 -0.005 0.06 -0.02 SGIOWN

1.28*** 0.42*** 0.16*** 0.18*** 0.16*** Size

16.71*** 2.63*** 0.99*** 0.39* 0.96*** ROA

0.10 -0.01 -0.01 -0.01 -0.005 Tobins q

-1.40** -0.84*** -0.30*** -0.26*** -0.31*** Leverage

2.43** 0.74** 0.45** 0.60** 0.44** CBA

-0.01 0.07 0.01 0.09 0.01 Alone


Firm effect
No Yes
Time effect
Yes No
Adjusted
(0.31) 0.14 0.31 0.14
(Pseudo) R2
7.53*** 4.78*** 13.25***
F-statistics

21
Table 6: Tobit regression results. The dependent variables are dividends to book value of equity (Div to BV),
dividends to sales ratio (Div to Sal), and dividends to market value of equity (Div to MV). All other variables are as
defined earlier. T-statistics are calculated using White Heteroskedasticity robust standard errors. *, **, *** denote
significance at the 10%, 5%, and 1% levels, respectively.
Panel A
Dependent variables
Div to BV Div to Sal Div to MV

Constant -0.41*** -0.61*** -0.15***

Largest -0.06*** -0.05 -0.04***

SG 0.01 0.005 0.01

Size 0.05*** 0.09*** 0.02***

ROA 0.49*** 0.43*** 0.23***

Tobins q 0.02*** 0.02** -0.01

Leverage -0.02 -0.33*** -0.03**

CBA 0.21*** 0.12* 0.08***

Alone 0.004 -0.02 0.004


Panel B
Dependent variables
Variables Div to BV Div to Sal Div to MV

Constant -0.40*** -0.61*** -0.16***

Largest -0.08** -0.05 -0.05**

SG -0.01 0.01 -0.004

SGI 0.0002 -0.002 0.01

SGIOWN 0.04 -0.001 0.01

Size 0.05*** 0.09*** 0.02***

ROA 0.47*** 0.43*** 0.22***

Tobins q 0.02*** 0.02** -0.01

Leverage -0.02 -0.33*** -0.03**

CBA 0.21*** 0.12* 0.08***

Alone 0.003 -0.02 0.003

22
Table 7: Panel A shows the results for the association between sales growth and dividend policy. Panel B shows the
association between ownership concentration and dividend payout when ownership concentration is interacted with
firm’s investment opportunities. All other variables are as defined earlier. T-statistics are calculated using White
Heteroskedasticity robust standard errors. *, **, *** denote significance at the 10%, 5%, and 1% levels, respectively.
Panel A
Logit Tobit Fixed Effects Fixed Effects OLS Variables

-9.09*** -2.75*** -0.63*** -0.74 -0.64*** Constant

-1.77*** -0.79*** -0.30*** -0.11 -0.29*** Own3

-0.27 0.03 -0.04 -0.02 -0.05 SG

1.26*** 0.43*** 0.16*** 0.17** 0.16*** Size


ROA
16.75*** 2.61*** 0.96*** 0.38* 0.93***
Tobins q
0.13 0.01 0.005 -0.01 0.005

-1.29** -0.84*** -0.30*** -0.23*** -0.30*** Leverage

2.55** 0.92*** 0.51** 0.58** 0.50** CBA


No Yes Firm effect
Yes No Time effect
(0.31) 0.15 0.32 0.15 Adjusted (Pseudo) R2
Panel B
Logit Tobit Fixed Effects Fixed Effects OLS Variables

-9.04*** -2.80*** -0.64*** -0.74 -0.67*** Constant

-1.99*** -0.62*** -0.21** -0.10 -0.21** Own3

-0.60 -0.01 -0.0002 -0.02 -0.03 SG

0.04 0.19 0.07 0.02 0.08 SGI

0.36 -0.32 -0.18 -0.02 -0.17 SGIOWN

1.25*** 0.43*** 0.16*** 0.16** 0.16*** Size

16.55*** 2.61*** 0.99*** 0.38* 0.96*** ROA

0.15 0.01 0.004 -0.01 0.004 Tobins q

-1.32** -0.84*** -0.29*** -0.24*** -0.30*** Leverage

2.56** 0.91*** 0.51** 0.58** 0.50** CBA


No Yes Firm effect
Yes No Time effect
(0.31) 0.15 0.31 0.15 Adjusted (Pseudo) R2

23

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