Academic journal article Journal of Management Research

Dividend Policy and Ownership Structure: An Applied Study on Industrial Companies in Amman Stock Exchange

Academic journal article Journal of Management Research

Dividend Policy and Ownership Structure: An Applied Study on Industrial Companies in Amman Stock Exchange

Article excerpt


This study aims to determine whether ownership structure is linked to the dividend policy on industrial companies are listed in ASE.

The study sample consisted of sixty two industrial firms listed in ASE from (2000-2006).In order to achieve the objective of the study, annually dividend and annual report publications of public shareholding firms held by ASE. The Tobit model or censored regression model specification was used to test the study hypotheses for the level of dividends paid. The study was found more than half (55%) of the firm observation in our sample have zero dividends. Results shows that ownership dispersion as measured by the natural log of the number of stockholders (STOCK) seems to be not related to dividend policy in Jordan since it was insignificant in both analyses, Tobit and OLS. The fraction held by insiders (INSD), has negative impact on the level of dividends paid. The other ownership, family is negatively but not significantly, and institution is positively and significant influence on the dividend policy, the multiple ownership is negative and insignificant, the finally variable for ownership is foreigner positive and insignificant.

Keywords: Dividend Policy, Ownership Structure, Industry Companies, Jordan

(ProQuest: ... denotes formulae omitted.)

1. Introduction

The main objective of this study is to investigate the relationship between ownership structure and dividend policy of Jordanian industrial firms which are listed in ASE.

Dividend payout has been an issue in financial literature. (Jensen & Meckling,1976) argue that information asymmetry between 'insiders' and 'outsider' may relate to agency cost.

On of the mechanisms they suggested to reduce outsiders' expropriation is to reduce free cash flow available to manager through high payout by the firm in form of dividend and repurchases this dividend payment lessen his ability to over-invest and gain benefits not shared with other Shareholders (Jensen, 1986). Moreover, high dividend levels increase the need to turn to the capital market frequently to finance future investment, with the consequence that the power of external investors increases and in turn facilitate the monitoring of firms by external capital markets (Esterbook, 1984).

It is also important to note that the extent to which the firm's dividend policy is effective in reducing the expected agency costs may also depend on its ownership and control structure.Recent researches emphasize the potential conflicts of interest between controlling shareholders and minority shareholders, ( Shleifer & Vishny, 1997) argue that when large owners gain nearly full control of the corporation, they prefer to generate private benefits of control that are not shared by minority shareholders (Faccio, 2001; Holderness, 2003). That is firms with large controlling shareholders may exhibit a different type of agency conflict, namely the expropriation of minority shareholders by majority shareholders.

On the other, hand in the presence of large share holders, managerial discretion can be curbed to some extent and agency costs between managers and shareholders are reduced because large shareholders have the ability and incentives to monitor and discipline management (Stiglitz, 1985; Shleifer & Vishny, 1986).This would in turn imply a lesser role for corporate payout policy to address agency problems between corporate insiders and outside shareholders.

In spite of few studies arguing that the factors effecting dividend policy in Jordanian firms.this study attempts to provide more insight into the literature by providing an empirical analysis on the relationship between corporate payout policy and ownership structures. More specifically, it will empirically investigate the relationship of ownership and control structure of firms on their dividend payments by using a sample of Jordanian firms listed on the Amman Stock Exchange. …

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