Impact of ownership structure and dividend on firm performance and firm risk

Abstract

Purpose

The purpose of this paper is to examine the influence of ownership structure and dividend payouts over firm’s profitability, valuation and idiosyncratic risk. The authors further investigate if corporate performance is sector dependent.

Design/methodology/approach

The study employs signaling and bankruptcy theories to evaluate the influence of ownership structure and dividend payout over a firm’s corporate performance. The authors use a panel regression approach to measure the performance of family owned firms against that of widely held firms.

Findings

The study confines to firms operating out of emerging markets. The results show that family owned firms are dominant with concentrated ownership. The management pays lower dividend leading to lower valuation and higher idiosyncratic risk. The study further illustrates that family ownership concentration and family control both influence firm performance and level of risk. The findings indicate that information asymmetry and under diversification lead to increased idiosyncratic risk, resulting in the erosion of firm’s value. Results also confirm that firms paying regular dividends are less risky and, hence, command a valuation premium.

Originality/value

The evidence supports the proposition that information asymmetry plays a significant role in explaining dividend payouts pattern and related impacts on corporate performance. The originality of the paper lies in factoring idiosyncratic risk while explaining profitability and related valuation among emerging market firms.

Citation

Rajverma, A.K., Misra, A.K., Mohapatra, S. and Chandra, A. (2019), "Impact of ownership structure and dividend on firm performance and firm risk", Managerial Finance, Vol. 45 No. 8, pp. 1041-1061. https://doi.org/10.1108/MF-09-2018-0443