Effect of ownership structure on the dividend decision for firms operating in emerging markets

This paper analyzes whether concentration of ownership impacts the dividend decision of firms operating in emerging markets. I collect financial information for firms in China, India, Pakistan, Brazil, Chile, and Argentina from the Mergent Online Database for the end of year 2007 and then compare summary statistics for firms from each country to those of firms from the developed market of the United States. Statistical tests are conducted to determine whether the independent variables of ownership structure, profitability, debt management, equity valuation and industry classification have any impact on the dependent variables of payout percentage and dividend yield for firms in these markets. Analysis of the firms operating in China suggests that along with the profitability measures of return on equity and return on assets, the amount of equity held by the majority shareholder is significant in determining the amount of dividends paid. Dividends paid by the Brazilian firms analyzed are also significantly related to the amount of equity held by the majority shareholder as well as the market capitalization of the firm. Data for firms from the other four countries of India, Pakistan, Chile and Argentina did not yield enough information for accurate statistical testing, but summary statistics are included for comparison. Controlling for other firm characteristics that can impact the dividend decision, the results are consistent with my hypothesis that ownership structure is a significant determinant of the amount that firms in emerging markets choose to pay out as cash dividends. This highlights the importance of understanding ownership structure when evaluating the financial decisions of firms operating in these markets.