The relation between dividends and insider ownership in different legal systems: international evidence

This paper provides new international evidence on the relationship between dividend policy and insider ownership by analysing a sample of firms from countries characterised by an Anglo-Saxon tradition and a matching sample of companies from countries with Civil Law legal systems. We hypothesize that, due to the different characteristics of both the legal system and the nature of agency conflicts in firms from those countries, the relation between dividend policies and ownership by insiders will be considerably distinct between the two sets of companies. We find that while in firms from Anglo-Saxon tradition the relation between dividends and insider ownership follows the pattern negative-positive-negative, in Civil Law countries the relation is positive-negative-positive. These results are consistent with our hypotheses and breed new insights into the role of dividend policy as a disciplining mechanism in countries with different legal systems and distinct agency problems.