Skip to main content
Disciplines
Automotive Business IT + Informatics Construction + Real Estate Electrical Engineering + Electronics Energy + Sustainability Insurance + Risk Finance + Banking Management + Leadership Marketing + Sales Mechanical Engineering + Materials
Events
DE
EN
Books
Journals
Topic Page
Marketing
Start single access now
Access for companies
EXTENDED SEARCH
Log in
Top
Small Business Economics
Published in: Small Business Economics 2/2015

01-02-2015

Dividends and family governance practices in private family firms

Authors: Anneleen Michiels, Wim Voordeckers, Nadine Lybaert, Tensie Steijvers

Published in: Small Business Economics | Issue 2/2015

Log in

Activate our intelligent search to find suitable subject content or patents.

search-config
loading …

Abstract

Intra-familial principal–principal conflict are a relevant agency problem in privately held family firms. These conflicts of interest commonly occur between active and passive family shareholders, and require remedies different from those that deal with principal-agent conflicts. This article empirically examines whether or not firms use dividends as instruments to cope with conflicts of interest between active and passive family shareholders and how family governance practices moderate this relationship. The results show that the existence of an intra-familial conflict of interest results in a higher propensity to pay dividends and that the use of family governance practices strengthens this relationship. Additionally, the findings suggest that using family governance practices leads to a more efficient dividend policy.
previous article Are entrepreneurship and cognitive skills related? Some international evidence
next article The driving forces of venture capital investments

Dont have a licence yet? Then find out more about our products and how to get one now:

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

  • über 102.000 Bücher
  • über 537 Zeitschriften

aus folgenden Fachgebieten:

  • Automobil + Motoren
  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Elektrotechnik + Elektronik
  • Energie + Nachhaltigkeit
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Maschinenbau + Werkstoffe
  • Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

inform now

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

  • über 67.000 Bücher
  • über 340 Zeitschriften

aus folgenden Fachgebieten:

  • Bauwesen + Immobilien
  • Business IT + Informatik
  • Finance + Banking
  • Management + Führung
  • Marketing + Vertrieb
  • Versicherung + Risiko




Jetzt Wissensvorsprung sichern!

inform now
Footnotes
1
In this paper, we investigate the propensity to pay dividends, and we thus do not examine the amount of dividends that are being paid out, for two reasons. First, the rather limited sample size and the rather small percentage of firms that are paying out dividends does not allow for detailed analyses of the dividend payout rate. Second, the objective of this paper is to investigate the presence of a dividend policy, which can be measured via the propensity to pay dividends.
 
2
We use this dummy (“and/or”) as a proxy for family governance practices because the fairly small sample size does not allow for a more detailed breakdown in sorts and numbers of family governance practices.
 
Literature
Ang, J. S. (1992). On the theory of finance for privately held firms. The Journal of Entrepreneurial Finance, 1(3), 185–203.
Ang, J. S., Cole, R. A., & Lin, J. W. (2000). Agency costs and ownership structure. Journal of Finance, 55(1), 81–106.CrossRef
Ayres, G. R. (1990). Rough family justice: Equity in family business succession planning. Family Business Review, 3(1), 3–22.
Baker, H. K. (1989). Why companies pay no dividends. Akron Business and Economic Review, 20(2), 48–61.
Baker, M., & Wurgler, J. (2004). A catering theory of dividends. The Journal of Finance, 59(3), 1125–1165.CrossRef
Bammens, Y., Voordeckers, W., & Van Gils, A. (2008). Boards of directors in family firms: A generational perspective. Small Business Economics, 31(2), 163–180.CrossRef
Baron, R. M., & Kenny, D. A. (1986). The moderator–mediator variable distinction in social psychological research: Conceptual, strategic, and statistical considerations. Journal of Personality and Social Psychology, 51(6), 1173.CrossRef
Bartholomeusz, S., & Tanewski, G. A. (2006). The relationship between family firms and corporate governance. Journal of Small Business Management, 44(2), 245–267.CrossRef
Berent-Braun, M., & Uhlaner, L. (2012). Family governance practices and teambuilding: Paradox of the enterprising family. Small Business Economics, 38(1), 103–119.CrossRef
Bhattacharyya, N. (2007). Dividend policy: A review. Managerial Finance, 33(1), 4–13.CrossRef
Brav, A., Graham, J., Harvey, C. R., & Michaely, R. (2003). Payout policy in the 21st century. MA, USA: National Bureau of Economic Research Cambridge.CrossRef
Brenes, E. R., Madrigal, K., & Requena, B. (2011). Corporate governance and family business performance. Journal of Business Research, 64(1), 280–285.CrossRef
Carney, M., & Gedajlovic, E. (2002). The coupling of ownership and control and the allocation of financial resources: Evidence from Hong Kong. Journal of Management Studies, 39(1), 123–146.CrossRef
Chen, Z., Cheung, Y. L., Stouraitis, A., & Wong, A. W. S. (2005). Ownership concentration, firm performance, and dividend policy in Hong Kong. Pacific-Basin Finance Journal, 13(4), 431–449.CrossRef
Chrisman, J. J., Chua, J. H., Kellermanns, F. W., & Chang, E. P. C. (2007). Are family managers agents or stewards? An exploratory study in privately held family firms. Journal of Business Research, 60(10), 1030–1038.CrossRef
Cruz, C. C., Gomez-Mejia, L. R., & Becerra, M. (2010). Perceptions of benevolence and the design of agency contracts: CEO–TMT relationships in family firms. Academy of Management Journal, 53(1), 69–89.CrossRef
DeAngelo, H., & DeAngelo, L. (2007). Payout policy pedagogy: What matters and why. European Financial Management, 13(1), 11–27.CrossRef
DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2004). Dividend policy, agency costs, and earned equity. MA, USA: National Bureau of Economic Research Cambridge.CrossRef
DeAngelo, H., DeAngelo, L., & Stulz, R. M. (2006). Dividend policy and the earned/contributed capital mix: A test of the life-cycle theory. Journal of Financial Economics, 81(2), 227–254.CrossRef
Denis, D. J., & Osobov, I. (2008). Why do firms pay dividends? International evidence on the determinants of dividend policy. Journal of Financial Economics, 89(1), 62–82.CrossRef
Dreux, D. R. (1990). Financing family business: Alternatives to selling out or going public. Family Business Review, 3(3), 225.CrossRef
Easterbrook, F. H. (1984). Two agency-cost explanations of dividends. The American Economic Review, 74(4), 650–659.
Eckrich, C. J., & McClure, S. L. (2012). The family council handbook: How to create, run, and maintain a successful family business council. Basingstoke: Palgrave Macmillan.
Eddleston, K. A., & Kellermanns, F. W. (2007). Destructive and productive family relationships: A stewardship theory perspective. Journal of Business Venturing, 22(4), 545–565.CrossRef
Faccio, M., Lang, L. H. P., & Young, L. (2001). Dividends and expropriation, American Economic Review, 91(1), 54–78.
Fama, E. F., & French, K. R. (2001). Disappearing dividends: Changing firm characteristics or lower propensity to pay? Journal of Financial Economics, 60(1), 3–43.CrossRef
Fama, E. F., & Jensen, M. C. (1983). Separation of ownership and control. Journal of Law and Economics, 26(2), 301–325.CrossRef
Farinha, J. (2003). Dividend policy, corporate governance and the managerial entrenchment hypothesis: An empirical analysis. Journal of Business Finance and Accounting, 30(9–10), 1173–1209.CrossRef
Fenn, G. W., & Liang, N. (2001). Corporate payout policy and managerial stock incentives* 1. Journal of Financial Economics, 60(1), 45–72.CrossRef
Gallo, M. (2004). The family business and its social responsibilities. Family Business Review, 17(2), 135–149.CrossRef
Gallo, M. A., & Vilaseca, A. (1996). Finance in family business. Family Business Review, 9(4), 387–401.CrossRef
Gersick, K. E., Davis, J. H., Hampton, M. M., & Lansberg, I. (1997). Generation to generation: Life cycles of the family business. Boston: Harvard Business School Press.
Gnan, L., Montemerlo, D., & Huse, M. (2013). Governance systems in family SMEs: The substitution effects between family councils and corporate governance mechanisms. Journal of Small Business Management. doi: 10.​1111/​jsbm.​12070
Gugler, K. (2003). Corporate governance, dividend payout policy, and the interrelation between dividends, R&D, and capital investment. Journal of Banking and Finance, 27(7), 1297–1321.CrossRef
Gujarati, D. (2003). Basic econometrics (4th ed.). Boston: McGraw Hill.
Habbershon, T. G., & Astrachan, J. H. (1997). Research note: Perceptions are reality: How family meetings lead to collective action. Family Business Review, 10(1), 37–48.CrossRef
He, T. T., Li, W. X. B., & Tang, G. Y. N. (2012). Dividends behavior in state-versus family-controlled firms: Evidence from Hong Kong. Journal of Business Ethics, 110(1), 97–112.CrossRef
Henry, D. (2011). Ownership structure and tax-friendly dividends. Journal of Banking and Finance, 35(10), 2747–2760.CrossRef
Hoy, F., & Sharma, P. (2010). Entrepreneurial family firms. Upper Saddle River, NJ: Prentice Hall.
Hu, A., & Kumar, P. (2004). Managerial entrenchment and payout policy. Journal of Financial and Quantitative Analysis, 39(4), 759–790.CrossRef
Jensen, M. C. (1986). Agency costs of free cash flow, corporate finance, and takeovers. The American Economic Review, 76(2), 323–329.
Jensen, M. C., & Meckling, W. H. (1976). Theory of firm—Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360.CrossRef
La Porta, R., Lopez de Silanes, F., Shleifer, A., & Vishny, R. W. (2000). Agency problems and dividend policies around the world. The Journal of Finance, 55(1), 1–33.CrossRef
Li, F., & Srinivasan, S. (2011). Corporate governance when founders are directors. Journal of Financial Economics, 102(2), 454–469.CrossRef
Lubatkin, M. H., Schulze, W. S., Ling, Y., & Dino, R. N. (2005). The effects of parental altruism on the governance of family-managed firms. Journal of Organizational Behavior, 26(3), 313–330.CrossRef
López‐Gracia, J., & Sánchez‐Andújar, S. (2007). Financial structure of the family business: evidence from a group of small Spanish firms. Family Business Review, 20(4), 269–287.  
Mancinelli, L., & Ozkan, A. (2006). Ownership structure and dividend policy: Evidence from Italian firms. The European Journal of Finance, 12(3), 265–282.CrossRef
Michaely, R., & Roberts, M. R. (2012). Corporate dividend policies: Lessons from private firms. Review of Financial Studies, 25(3), 711–746.CrossRef
Miller, M. H., & Modigliani, F. (1961). Dividend policy, growth, and the valuation of shares. Journal of Business, 34(4), 411–433.
Modigliani, F., & Miller, M. H. (1958). The cost of capital, corporation finance and the theory of investment. The American Economic Review, 48(3), 261–297.
Mustakallio, M., Autio, E., & Zahra, S. A. (2002). Relational and contractual governance in family firms: Effects on strategic decision making. Family Business Review, 15(3), 205.CrossRef
Naceur, S. B., Goaied, M., & Belanes, A. (2006). On the determinants and dynamics of dividend policy. International Review of Finance, 6(1–2), 1–23.CrossRef
Neubauer, F. F., & Lank, A. G. (1998). The family business: Its governance for sustainability (Vol. 29). London: Routledge.
Pindado, J., Requejoa, I., & de la Torrea, C. (2011). The effect of family control on the corporate dividend policy: An empirical analysis of the Euro zone.
Poppo, L., & Zenger, T. (2002). Do formal contracts and relational governance function as substitutes or complements? Strategic Management Journal, 23(8), 707–725.CrossRef
Poza, E. J. (2009). Family business. Boston: South-Western Pub.
Rommens, A., Cuyvers, L., & Deloof, M. (2012). Dividend policies of privately held companies: Stand alone and group companies in Belgium. European Financial Management, 18(5), 816–835.CrossRef
Ross, S. A. (1973). Economic theory of agency—Principals problem. American Economic Review, 63(2), 134–139.
Rozeff, M. (1982). Growth, beta and agency costs as determinants of dividend payout ratios. Journal of Financial Research, 5(3), 249–259.CrossRef
Schulze, W. S., Lubatkin, M. H., & Dino, R. N. (2003a). Exploring the agency consequences of ownership dispersion among the directors of private family firms. Academy of Management Journal, 46(2), 179–194.CrossRef
Schulze, W. S., Lubatkin, M. H., & Dino, R. N. (2003b). Toward a theory of agency and altruism in family firms. Journal of Business Venturing, 18(4), 473–490.CrossRef
Schulze, W. S., Lubatkin, M. H., Dino, R. N., & Buchholtz, A. K. (2001). Agency relationships in family firms: Theory and evidence. Organization Science, 12(2), 99–116.CrossRef
Setia Atmaja, L., Tanewski, G. A., & Skully, M. (2009). The role of dividends, debt and board structure in the governance of family controlled firms. Journal of Business Finance and Accounting, 36(7–8), 863–898.CrossRef
Sharma, V. (2011). Independent directors and the propensity to pay dividends. Journal of Corporate Finance, 17(4), 1001–1015.CrossRef
Sharma, P., Chrisman, J. J., & Chua, J. H. (1997). Strategic management of the family business: Past research and future challenges. Family Business Review, 10(1), 100–110.CrossRef
Short, H., Zhang, H., & Keasey, K. (2002). The link between dividend policy and institutional ownership. Journal of Corporate Finance, 8(2), 105–122.CrossRef
Siebels, J. F., & Knyphausen-Aufseß, D. (2012). A review of theory in family business research: The implications for corporate governance. International Journal of Management Reviews, 14(3), 280–304.CrossRef
Sirmon, D. G., & Hitt, M. A. (2003). Managing resources: Linking unique resources, management, and wealth creation in family firms. Entrepreneurship theory and practice, 27(4), 339-358.
Steier, L. (2001). Family firms, plural forms of governance, and the evolving role of trust. Family Business Review, 14(4), 353–368.CrossRef
Stewart, A., & Hitt, M. A. (2012). Why can’t a family business be more like a nonfamily business? Modes of professionalization in family firms. Family Business Review, 25(1), 40–56.CrossRef
Storey, D. J. (1994). Understanding the small business sector. Boston: Thomson Learning Emea.
Suáre, K., & Santana-Martin, D. (2004). Governance in Spanish family business. International Journal of Entrepreneurial Behaviour and Research, 10(1/2), 141–163.CrossRef
Sundaramurthy, C. (2008). Sustaining trust within family business. Family Business Review, 21(1), 89–102.CrossRef
Thomas, J. (2002). Freeing the shackles of family business ownership.  Family Business Review, 15(4), 321–336.
Uhlaner, L., Wright, M., & Huse, M. (2007). Private firms and corporate governance: An integrated economic and management perspective. Small Business Economics, 29(3), 225–241.CrossRef
Vilaseca, A. (2002). The shareholder role in the family business: Conflict of interests and objectives between nonemployed shareholders and top management team. Family Business Review, 15(4), 299.CrossRef
Ward, J. L. (1997). Growing the family business: Special challenges and best practices. Family Business Review, 10(4), 323–337.CrossRef
Westhead, P., & Cowling, M. (1998). Family firm research: The need for a methodological rethink. Entrepreneurship Theory and Practice, 23, 31–56.
Yoshikawa, T., & Rasheed, A. A. (2010). Family control and ownership monitoring in family-controlled firms in Japan. Journal of Management Studies, 47(2), 274–295.CrossRef
Young, M. N., Peng, M. W., Ahlstrom, D., Bruton, G. D., & Jiang, Y. (2008). Corporate governance in emerging economies: A review of the principal–principal perspective. Journal of Management Studies, 45(1), 196–220.CrossRef
Metadata
Title
Dividends and family governance practices in private family firms
Authors
Anneleen Michiels
Wim Voordeckers
Nadine Lybaert
Tensie Steijvers
Publication date
01-02-2015
Publisher
Springer US
Published in
Small Business Economics / Issue 2/2015
Print ISSN: 0921-898X
Electronic ISSN: 1573-0913
DOI
https://doi.org/10.1007/s11187-014-9594-0

Other articles of this Issue 2/2015

Small Business Economics 2/2015 Go to the issue

OriginalPaper

Productivity, outsourcing and exit: the case of Australian manufacturing

OriginalPaper

Are entrepreneurship and cognitive skills related? Some international evidence

OriginalPaper

Transnational activities of immigrant-owned firms and their performances in the USA

OriginalPaper

Are high-growth firms one-hit wonders? Evidence from Sweden

OriginalPaper

Infrastructure and entrepreneurship

OriginalPaper

Leverage and firm performance of small businesses: evidence from Japan

Premium Partner

    Image Credits