How corporate governance affects payout policy under agency problems and external financing constraints
- Authors
- Chae, Joon; Kim, Sungmin; Lee, Eun Jung
- Issue Date
- Nov-2009
- Publisher
- Elsevier BV
- Keywords
- Payout policy; Corporate governance; Agency problems; External financing constraints
- Citation
- Journal of Banking and Finance, v.33, no.11, pp.2093 - 2101
- Indexed
- SCOPUS
- Journal Title
- Journal of Banking and Finance
- Volume
- 33
- Number
- 11
- Start Page
- 2093
- End Page
- 2101
- URI
- https://scholarworks.bwise.kr/erica/handle/2021.sw.erica/40744
- DOI
- 10.1016/j.jbankfin.2009.05.003
- ISSN
- 0378-4266
- Abstract
- This paper analyzes the effect of corporate governance on the payout policy when a firm has both agency problems and external financing constraints. We empirically test whether strong corporate governance would lead to higher payout to minimize agency problems (outcome hypothesis), or to lower payout to avoid costly external financing (substitute hypothesis). We find that firms with higher (lower) external financing constraints tend to decrease (increase) payout ratio with an improvement in their corporate governance. The results are consistent with our hypothesis that the relation between payout and corporate governance is reversed depending on the relative sizes of agency and external financing costs. (C) 2009 Elsevier B.V. All rights reserved.
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