Corporate Governance and the Value of Dividends

Sammanfattning: In this paper we investigate how corporate governance affect the value of dividends, using a sample of 1124 companies in the United States between the years 1990 and 2007 for a total sample of 9901 observations. Companies with poor corporate governance should be associated with a higher risk to investors than companies with good corporate governance and dividends should be a way to decrease the risk of managers wasting resources on overinvestment and on extracting personal benefit, as well being a signal from managers that they are willing to be monitored by the capital market. This suggests that dividends from companies with poor corporate governance should be valued higher than dividends from companies with good corporate governance. By using a firm valuation model by Fama and French (1998) and a corporate governance index by Gompers et al. (2003), running a regression on a badly governed and a well-governed portfolio of companies as well as a regression with an interaction effect between dividends and corporate governance, we find that dividends from companies with poor corporate governance are valued higher than dividends from companies with good corporate governance. The findings have implications for understanding how corporate governance, dividends and their interaction affect firm value.