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臺大管理論叢
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1
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Our findings indicate that the enhancement of legal institutions, especially in emerging
economies in which governance systems are weak, can mitigate the efforts of controlling
shareholders to mask their expropriation activities from minority shareholders through
higher dividend payouts.
The next section develops the hypotheses. Section III describes the data and sample.
Section IV reports the empirical results and sensitivity tests. Finally, section V concludes
the study.
2. Literature Review and Hypotheses
The separation of control rights from cash flow rights creates an incentive for
controlling shareholders to expropriate from outside investors, because expropriation
provides them with private benefits that are greater than those they are entitled to based on
the cash flow rights of their shareholdings (Claessens, Djankov, and Lang, 2000; Faccio
and Lang, 2002). As a result, controlling shareholders with a large cash flow-control
divergence have a greater incentive to expropriate.
However, expropriation is costly. Outside investors realize that there is a greater risk
of expropriation when controlling shareholders have a large control divergence, and thus
become less willing to invest in the stock of firms with this characteristic, or place a lower
value on these stocks, which increases the cost of capital for such firms (Hail and Leuz,
2006). To sustain the market valuation and capital supply of their firm, controlling
shareholders must choose either not to expropriate or to conceal their expropriation
activities. Controlling shareholders mask their expropriation by paying higher dividends,
because outside investors believe that dividend payouts represent a commitment by
controlling shareholders to limit their expropriation and to return profits to outside
investors. Easterbrook (1984) and Jensen (1986) argue that dividend payments mitigate
agency problems, as the market believes that such payouts reduce the amount of wealth
that is available for controlling shareholders to expropriate. Faccio et al. (2001) find that
the need of controlling shareholders to mask their expropriation activities depends on the
alertness of investors to insider expropriation. When outside investors are alert to
expropriation, controlling shareholders have more need to mask their activities, and thus
pay out higher dividends. In contrast, when outside investors are less alert to
expropriation, controlling shareholders have less need to mask their activities, and thus
reduce dividend payouts.
A growing body of literature suggests that better investor protection increases the