the influence of agency costs on dividend policy in an emerging market: evidence from the tehran
زمستان 1384 - شماره 15 ISC (22 صفحه - از 59 تا 80)
Dividend policy has long been an issue of interest in the financial literature. To date, a number of studies published on agency costs and dividend policy but most of them are on developed markets. It is well known that the emerging markets are quite different from developed markets in all respects. So, the existing published evidence is of limited relevance in identifying the influence of agency costs on dividend policy in an emerging market. The major objective of this paper is to identify the influence of agency costs on dividend policy in an emerging market. The Tehran Stock Exchange (TSE) listed non-financial sector companies for the period of 1997-2002 are considered as the sample of the study. Ordinary Least Square regression model employs to identify the influence of agency costs on dividend policy in an emerging market. The results indicate that number of common stockholders, collateralizable assets, and free cash flow positively related to dividend pay-out ratio. All of these coefficients are in the predicted direction and are quite consistent with the findings of Rozeff’s study (1982) as well as those conducted so far. However, these results support Jensen’s (1986) free cash flow hypothesis. Finally, these results suggest the influence of agency costs on dividend policy in an emerging market.
"The free cash flow hypothesis is an ad hoc combination of the signaling and agency costs paradigms; the payment of dividends can decrease the level of funds available for perquisite consumption by corporate managers. Agency problems result from information asymmetries, potential wealth transfers from bondholders to stockholders through the acceptance of high-risk and high-return projects by managers, and failure to accept positive net present value projects and perquisite consumption in excess of the level consumed by prudent corporate managers (Barnea, Haugen, and Senbet, 1981). The ratio of net fixed assets to total assets is considered as the proxy of collateralizable assets for the agency cost arises for the conflict between Table 1: A Brief Summary of the Major Studies on Determinants of Dividend Policy Author Data Set Dependent Variable Method Findings Regarding the Agency Cost Theory 1. ,1993 Cross-section of 105 US non- financial sector firms over the period of 1983- 85 Dividend Pay-out Ratio 2 Stage Multivariate ((a) Factor Analysis and (b) OLS) Agency Cost: Support 5. OLS Regression Model: Dividend Pay-out Ratio (DPR)=α+β1 Dispersion of Ownership (DOWNER) +β2 Free Cash Flow (FCF) + β3 Collateralizable Assets (COLLASS) + ε Table 3: Descriptive Statistics of the Variables $$$ IV. Ordinary Least Square model is tested on the Tehran Stock Exchange data over the period of 1997-2002 to identify the influence of agency costs on dividend policy on which no study conducted yet."
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