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Dividends and family governance practices in private family firms

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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.

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Notes

  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.

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Authors and Affiliations

  1. Faculty of Economics and Business, Research Centre for Entrepreneurship and Family Business, KU Leuven, Warmoesberg 26, 1000, Brussels, Belgium

    Anneleen Michiels

  2. KIZOK Research Centre, Hasselt University, Martelarenlaan 42, 3500, Hasselt, Belgium

    Wim Voordeckers, Nadine Lybaert & Tensie Steijvers

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  1. Anneleen Michiels
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  2. Wim Voordeckers
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  3. Nadine Lybaert
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  4. Tensie Steijvers
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Correspondence to Wim Voordeckers.

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Michiels, A., Voordeckers, W., Lybaert, N. et al. Dividends and family governance practices in private family firms. Small Bus Econ 44, 299–314 (2015). https://doi.org/10.1007/s11187-014-9594-0

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