Dividends and Expropriation
By MARA FACCIO, LARRY H. P. LANG, AND LESLIE YOUNG*
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)