Do Family Firms Use Dividend Policy as a Governance Mechanism? Evidence from the Euro zone

Abstract

[EN] Manuscript Type:EmpiricalResearch Question/Issue:This study investigates whether family firms use dividend policy as a corporate governancemechanism to overcome agency problems between the controlling family and minority investors. We further account fordeviations between ownership and control and consider the presence and identity of other large shareholders in familycompanies.Research Findings/Insights:Based on a sample of firms from nine Eurozone countries and using a panel data method, wefind that family firms distribute higher and more stable dividends to alleviate expropriation concerns of minority investors.However, the higher dividend payments are mainly explained by family firms with no separation between the largestowner’s voting and cash flow rights and those with non-family second blockholders.Theoretical/Academic Implications:We contribute to the literature by shedding light on how the family business modelaffects companies’ dividend preferences. Our research also highlights the importance of taking into account the identity oflarge shareholders, especially in a context in which concentrated ownership structures are commonplace. The reporteddifferences in dividend policies between family and non-family firms help to clarify the variant performances of familybusinesses found in previous studies.Practitioner/Policy Implications:Family firms should regard dividend policy as a governance tool that allows them toattract prospective investors and enlarge their shareholder base. Simultaneously, minority investors can benefit from familyfirms’ dividend decisions. Our evidence also suggests that European policy makers should lay the necessary foundations toprevent controlling families from adopting ownership structures that serve their own personal interests.