Why Do Privatized Firms Pay Higher Dividends?

Newly privatized firms increase dividends after divestment, and also pay significantly higher dividends compared to always-private firms. We examine a sample of 83,468 firm-years (358 privatized and 4,894 always-private firms) across 26 countries and show that the dividend premium is significantly positively related to new agency costs induced by privatization and is associated with levels of increased operating efficiency and higher earnings. The premium manifests in both civil and common law countries, but is significantly higher in civil law countries. Our findings hold invariant to home-country economic development or to the cross-country and temporal variation in the dividend tax penalty