Scandinavian Working Papers in Economics

Working Paper Series in Economics and Institutions of Innovation,
Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

No 152: Ownership, Dividends, R&D and Retained Earnings - are institutional owners short-term oriented?

Daniel Wiberg ()
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Daniel Wiberg: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden

Abstract: This paper investigates the link between institutional ownership and dividend policy. Utilizing a dividend payout model, which accounts for earnings trends and partial adjustments of dividends, a positive but marginally diminishing relation is found between institutional ownership and dividends. This result holds when ownership is retained through the use of control enhancing mechanisms such as vote-differentiation, instruments that induce investors to demand higher payout ratios. A positive effect with respect to earnings is also recognized.By studying a panel of 189 Swedish firms, the paper presents the first evidence for the relationship between dividend payout policy and ownership in a corporate governance system which is characterized by an extensive separation of ownership from control. Most studies on the relationship between ownership and dividends have been made on US or UK data, which do not account for this Continental-European governance attribute. The paper supplements the literature by examining a unique database of ultimate ownership which makes it possible to account for ownership continuously.

Keywords: Payout policy; institutions; ownership; corporate governance; panel data

JEL-codes: G23; G30; G32; G35; O16

28 pages, November 12, 2008

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