Dividends and Expropriation

TLDR

In East Asia and Western Europe, corporate ownership is dominated by controlling families or groups, creating a crony‑capitalism environment where controlling shareholders may expropriate minority shareholders. The study uses dividend payments as evidence to assess expropriation by controlling shareholders. European group‑affiliated firms pay higher dividends than Asian counterparts, reducing insider expropriation, whereas in Asia higher dividends with multiple large shareholders actually increase expropriation. JEL classification: G34, G35.

Abstract

Whereas most U.S. corporations are widely held, the predominant form of ownership in East Asia is control by a family, which often supplies a top manager. These features of “crony capitalism” are actually more pronounced in Western Europe. In both regions, the salient agency problem is expropriation of outside shareholders by controlling shareholders. Dividends provide evidence on this. Group-affiliated corporations in Europe pay higher dividends than in Asia, dampening insider expropriation. Dividend rates are higher in Europe, but lower in Asia, when there are multiple large shareholders, suggesting that they dampen expropriation in Europe, but exacerbate it in Asia. (JEL G34, G35)