Dividend payout, corporate governance, and the enforcement of creditor rights in emerging markets. Economics Finance & Accounting Working Paper Series N227-12

In this paper I examine the relationship between the strength of creditor rights, their enforcement, corporate governance and corporate dividend payout in a sample of 281 emerging market firms. I show that the outcome model of dividends, which states that corporate dividend payout increases in the strength of corporate governance, holds in emerging markets, but only where the legal enforcement of creditor rights is strong. Where legal enforcement is weak, the shareholders of better-governed firms are not able to use their legal rights to extract large dividends from firms. The shareholders of better-governed firms are unable to extract large dividends from firms irrespective of the strength of creditor rights. That is, differences in creditor rights are not systematically related to dividend payout in the way predicted by the agency costs of debt and equity version of the outcome model of dividends