Dividend payouts: majority control and rent extraction
Abstract
In Eurasia, Turkey has a “crony” capitalist system with majority control and business groups (BGs) in the hands of a few families. These business groups are often organised around a holding company. We analyse the dividend payouts of family controlled Borsa Istanbul companies, which are affiliated to holding and non-holding BGs. We investigate and quantify the effects of several control-enhancing mechanisms (CEMs) on dividend payouts. We use precise quantitative proxies for CEMs to measure the divergence between control and ownership rights. Supporting the rent extraction hypothesis, holding business group companies have lower dividend payouts as the divergence between control and ownership rights widens and the pyramid wedge increases. However, controlling foreign-family coalitions in holding business group companies curb the rent extraction problem by having a positive effect on the dividend payouts. Overall, for family controlled holding BG companies, the effects of company-specific financial control variables on dividend payouts are stronger than the effects of CEMs. For family controlled non-holding BG companies, there is no empirical support for either the rent extraction or the reputation building hypotheses. The company-specific financial control variables are the main determinants of dividend payouts for family controlled non-holding BG companies.
Keyword : dividend, control, ownership, holding, foreign, rent extraction, reputation building, substitution, expropriation
How to Cite
Besim, S., & Adaoglu, C. (2018). Dividend payouts: majority control and rent extraction. Journal of Business Economics and Management, 19(4), 648-672. https://doi.org/10.3846/jbem.2018.6808
This work is licensed under a Creative Commons Attribution 4.0 International License.
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Demirag, I., & Serter, M. (2003). Ownership patterns and control in Turkish listed companies. Corporate Governance: An International Review, 11(1), 40-51. https://doi.org/10.1111/1467-8683.00300
Desai, M. A., & Jin, L. (2011). Institutional tax clienteles and payout policy. Journal of Financial Economics, 100(1), 68-84. https://doi.org/10.1016/j.jfineco.2010.10.013
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González, M., Guzmán, A., Pombo, C., & Trujillo, M. A. (2014). Family involvement and dividend policy in closely held firms. Family Business Review, 27(4), 365-385. https://doi.org/10.1177/0894486514538448
González, M., Molina C. A., Pablo, E., & Rosso J. W. (2017). The effect of ownership concentration and composition on dividends: evidence from Latin America. Emerging Markets Review, 30, 1-18. https://doi.org/10.1016/j.ememar.2016.08.018
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