Trade-off between agency problem and growth opportunity on dividend payout policy under product market competition

Sue-Fung Wang and Meng-Shiang Chiu

International Journal of Corporate Governance, 2012, vol. 3, issue 2/3/4, 126-142

Abstract: This paper investigates whether or not product market competition affects payout policy. According to literature, issues related to dividend payout policy comprise two competing hypotheses, namely, the maturity hypothesis and the free cash flow hypothesis. The former argues that growth opportunity and dividend payout have a negative relationship, whereas the latter argues that firms tend to increase dividend payouts in order to weaken agency problems. Existing studies seldom discuss the issue in which dividend payout policy faces the trade-off between growth opportunity and agency problem in different levels of product market competition. Therefore, employing regression analysis, we explored the current issue with US manufacturing firms as samples. The firms show the tendency to retain more cash to expand their growth opportunities and decide to pay fewer dividends in less-concentrated industries. Therefore, the dividend policy of firms is consistent with the maturity hypothesis in less-concentrated industries.

Keywords: production market competition; agency problem; dividend payout policy; growth opportunities; maturity; free cash flow; manufacturing industry; USA; United States; dividends. (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.inderscience.com/link.php?id=51854 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ids:ijcgov:v:3:y:2012:i:2/3/4:p:126-142

Access Statistics for this article

More articles in International Journal of Corporate Governance from Inderscience Enterprises Ltd
Bibliographic data for series maintained by Sarah Parker ().