Ownership, payout, firm investment and growth: a comprehensive study for Belgian firms (R-7226)

Within the neo-classical world of Miller and Modigliani (1961), dividend policy is irrelevant. The M&M-theorem proposes that dividends drop out as a pure residual once the optimal level of investment has been determined, and that, therefore, dividend policy has no impact on firm value. In practice, dividend policy is anything but irrelevant: dividend policy can be used as a partial solution to agency problems, inherent to the specific ownership situation. Moreover, owners can impose their preferences regarding dividend policy and financing. Empirical evidence shows that public firms maintain the highest payout ratios compared to private firms. At the same time, many public firms raise external capital to finance these payouts. Empirical research indicates that ownership characteristics (i.e. structure, composition and public vs private ownership) play an important role in forming the payout (financing) preferences. The main consequence of market imperfections is the resulting trade-off between investments and dividends. Firms with dispersed ownership prefer stable payouts with the result that, in the absence of sufficient external financing, payout comes at the expense of undertaking investment opportunities. The main goal of this doctoral research project is to look at the role of ownership in the interaction between payout (financing) and investment decisions and to explore the resulting effect on firm growth.

Keywords:Financial Accounting, Management Accounting

Disciplines:Applied economics, Business administration and accounting, Management