The Payout Policy of Politically Connected Firms: Tunnelling vs. Reputation

26 Pages Posted: 13 Nov 2019

See all articles by Félix J. López-Iturriaga

Félix J. López-Iturriaga

Universidad de Valladolid - Department of Finance and Accounting; National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy

Domingo J. J. Santana‐Martín

University of Las Palmas de Gran Canaria

Date Written: November 4, 2019

Abstract

Using the firms’ directors who have a background in politics as a measure of political connections, we analyze the relationship between political ties and dividend policy in a sample of listed Spanish firms. We find that political connections are positively related with cash dividends. This result is consistent with a concern about the interests of minority shareholders in the politically connected firms or with the less financial constraints of these firms. We also find a positive relationship between political connections and share repurchases, a way of shareholder compensation that is gaining popularity. This result could be related to the valuation of politically connected firms. Our results are robust to alternative empirical specifications such as the propensity score matching procedure, different metrics of payout policy, and different levels of political connections. Interestingly, the recent financial crisis has not changed the preferences of connected firms for shareholders compensation with dividends and share repurchases.

Keywords: Political connections, dividends, dominant owners, share repurchases, board of directors

JEL Classification: G34, G35

Suggested Citation

Lopez-Iturriaga, Felix Javier and Santana-Martín, Domingo J., The Payout Policy of Politically Connected Firms: Tunnelling vs. Reputation (November 4, 2019). Available at SSRN: https://ssrn.com/abstract=3480616 or http://dx.doi.org/10.2139/ssrn.3480616

Felix Javier Lopez-Iturriaga (Contact Author)

Universidad de Valladolid - Department of Finance and Accounting ( email )

Avda. Valle Esgueva 6
47011 Valladolid
Spain
+34 983 184 395 (Phone)
+34 983 183830 (Fax)

National Research University Higher School of Economics - International Laboratory of Intangible-driven Economy ( email )

Lebedeva,27
Perm, Perm 614070
Russia

Domingo J. Santana-Martín

University of Las Palmas de Gran Canaria ( email )

C/Juan de Quesada, No. 30
Las Palmas de Gran Canaria, Las Palmas 35017
Spain

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