How Corporate Governance Influence Dividends on Different Corporation Lifecycle Stages

Abstract

The modern model of the corporation involves the separation of property and control, which often leads to the emergence of corporate conflicts, which are a serious obstacle to the effective distribution of capital. The study of the relationship of dividend policy and the quality of corporate governance is an important task. On the one hand, decisions on payout policy and capital structure can be viewed as mechanisms for resolving agency conflicts or substitutes for best corporate governance practices. On the other hand, the quality of corporate governance itself is a determining factor in financial decisions. This paper attempts to explain previously obtained contradictory empirical results using the theory of the corporate life cycle. The direction of the relationship between dividend payments and quality of corporate governance at different stages in the life cycle may vary. For the ISS index, the outcome theory better explains the payout policy in later stages of the life cycle for mature, stable companies that have significant resources to resolve agency conflicts. The model of substitutes, in turn, explains the use of the payout policy at the early stages of the life cycle, when the cost of building high-quality corporate governance far exceeds potential losses from dividend payments.