Controlling Shareholders’ Activism Quality and the Disciplinary Role of Dividend

Abstract

The aim of this paper is to investigate the disciplinary role of dividend in the Tunisian context. Based on the agency theory predictions, we consider the effect of two conflicting model of dividend: the outcome and the substitute model. Using a sample of 528 firm-years listed on the Tunisian Stock Exchange over the period 1998-2009, our results highlight the deficiency of the disciplinary role of dividend. Empirical evidence shows that dividend policy is the result of large shareholders preferences. We find a positive relationship between dividend payout ratios and the voting powers of financial institutions and the second largest shareholder. In contrast, the control stakes of family and the largest shareholder are negatively related to the payout ratios. We also find a positive association between the free cash flow, the return on assets, the business sector and dividend to earnings ratio. Finally, we document a negative relationship between the debt ratio and dividend payouts. Taken together, our results are consistent with the outcome model of dividend policy.

Keywords: dividend, corporate governance, controlling shareholders, voting power, agency theory.