Shareholder Protection and Agency Costs: An Experimental Analysis

• 成果类型: Article
• 署名作者: LaRiviere, Jacob; McMahon, Matthew; Neilson, William
• 署名单位: Microsoft; University of Arkansas System; University of Arkansas Little Rock; University of Arkansas Fayetteville; University of Tennessee System; University of Tennessee Knoxville
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2017.2770
• 发表日期: 2018
• 页码: 3108-3128
• 关键词: dividends; expropriations; AGENCY COSTS; experiment; Trust game

摘要

Two competing principal-agent models explain why firms pay dividends. The substitute model proposes that corporate insiders pay dividends to signal and build trust with outside shareholders who lack legal protection. The outcome model, in contrast, surmises that when shareholders have legal protection, they demand dividends from insiders to prevent them from expropriating corporate funds. Either way, dividends represent an agency cost paid to align the interests of shareholders and insiders. Expropriations by insiders and reduced investment by shareholders are also agency costs, but they are difficult to identify with archival data. Using a laboratory experiment, we identify the impact of strengthened shareholder protection on all three types of agency costs. Dividend payout ratios are five times larger with stronger investor protection, insider expropriation ratios are twice as high, and outsider investment falls by 45%. Thus, we find evidence that strengthening shareholder protection introduces previously unidentified agency costs into the insider-investor relationship.