Ownership Structure and Dividend Smoothing: Cross-Country Evidence

We investigate the dividend smoothing behavior of firms using a large sample of firms covering 28 countries. Our results show that the levels of dividend smoothing in the firms vary substantially across countries. This finding confirms and extends the findings of previous research that the dividend policy of the U.S. firms differs materially from the dividend policies of the firms in other countries. We propose that an extension of the agency view of dividends may explain the diversity of dividend smoothing behavior of our sample firms. We argue that the agency view of dividends implies that both firm- and country-level ownership structures are potentially important determinants of the dividend smoothing decisions of the firms. The results presented in this paper support this view. Both firm- and country-level ownership concentrations are negatively associated with dividend smoothing. Our results show that the effects of country-level ownership are much stronger than the effects of firm level ownership. The relation between ownership structure and dividend smoothing is robust to a variety of alternative explanations.