The Modern Firm, Corporate Governance and Investment
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The Modern Firm, Corporate Governance and Investment

Edited by Per-Olof Bjuggren and Dennis C. Mueller

This book explores the revolutionary development of the theory of the firm over the past 35 years. Despite rapid progress in the field, new developments in the microeconomic and industrial organization literature have been relatively scant. This book attempts to redress the balance by providing a comprehensive overview of the theory of the firm before moving on to examine firms and the organization of their economic activities. The contributors also investigate the impact of ownership structure and board composition on firm performance and study how the institutional framework of an economy affects investment decisions.
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Chapter 10: Institutional Ownership and Dividends

Daniel Wiberg


Daniel Wiberg* 1. INTRODUCTION During the late 1990s firms’ dividend payout ratios reached unprecedented low levels despite high earnings and price-to-dividend ratios. Recently however, with a continuing institutionalization of capital, dividend payout ratios have soared. At present many multinational firms pay out special dividends and buy back shares on a scale previously unseen. What role does the increasing institutionalization of capital play in this development? This chapter addresses this issue by investigating the effect of institutional ownership on dividend changes. A large body of research exists on how corporate ownership structure influences financing, investments and dividend decisions. The relationship between management ownership and dividend policy has been especially well documented (see, for example, Rozeff, 1982; Jensen et al., 1992; Eckbo and Verma, 1994; Moh’d et al., 1995). The link between institutional investors’ ownership and dividend policy is, however, somewhat neglected (for dividends decisions see Short et al. (2002) and Gugler and Yurtoglu (2003)). This lack of research is remarkable since there has been such an increase in the importance and presence of these types of investor in recent decades. Although studies exist they are predominantly done on US or UK data (for example, Short et al., 2002) which, although central, fail to provide comprehensive insights when the institutional framework is different from what is usually referred to as the Anglo-Saxon corporate governance system. In Continental Europe and Scandinavia the general corporate governance structure is characterized by a much more concentrated ownership, often in combination with control instruments such as dual-class...

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