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Dividend Policy, Creditor Rights, And The Agency Costs Of Debt, Paul Brockman, Emre Unlu
Dividend Policy, Creditor Rights, And The Agency Costs Of Debt, Paul Brockman, Emre Unlu
Department of Finance: Faculty Publications
We show that country-level creditor rights influence dividend policies around the world by establishing the balance of power between debt and equity claimants. Creditors demand and managers consent to a more restrictive payout policy as a substitute for weak creditor rights in an effort to minimize the firm’s agency costs of debt. Using a sample of 120,507 firm-years from 52 countries, we find that both the probability and amount of dividend payouts are significantly lower in countries with poor creditor rights. A reduction in the creditor rights index from its highest value to its lowest value implies a 41% reduction …