Authors: Alexandros Sikalidis, Konstantinos Bozos, Antonios Chantziaras, Christos Grose

Title: The impact of family ownership on dividend policy in Greece

Abstract

We explore the relationship between family ownership and dividend policy in an insider financial system under mandatory dividend rules. In a civil law insider institutional setting like ours, the concentration of management control in the hands of family members in combination with poor corporate governance makes the expropriation of minorities more likely for high levels of family ownership leading potentially to lower dividend payouts.

We employ a model similar to Isakov and Weisskopf (2015) to assess the effect of family ownership on dividend policy for a sample of 2,202 firm-year observations of Greek listed firms for the period 2005-2016. We examine the influence of family ownership on both the level of dividend payouts and the likelihood of a decision to waive the MDR. We further explore the role of key firm-specific conditions, namely growth opportunities and cost of capital, which have been theoretically established to influence dividend payouts.

We empirically demonstrate a U-shaped relationship between dividends and family ownership, akin to previously documented dividend patterns across Anglo-American firms, in line with the entrenchment and the family income hypotheses. We conclude that family-controlled firms use dividends not only as a distribution mechanism, but also as a corporate governance device.

We also surmise that a combination of governance signaling and family revenue needs drive to a large extend the payout policies of our sample of firms. We further show that under firm-specific conditions – such as a firm’s investment growth and the probability of financial distress – dividend policy may be affected and can deviate significantly from standard dividend patterns demonstrating an inverse U-shape relationship between firms’ dividend payouts or the likelihood of a payment below MDR and their family ownership levels.