4. RESULTS AND DISCUSSION

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3.6 RESEARCH MODEL

I use the next main regression model:

𝐷𝑖𝑣𝑖𝑑𝑒𝑛𝑑𝑠_!" = 𝛽_!+ 𝛽_!𝑂𝑤𝑛𝑒𝑟𝑠ℎ𝑖𝑝_!"+ 𝛽_!Σ𝐶𝑜𝑛𝑡𝑟𝑜𝑙𝑠_!" + Σ𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦_! + Σ𝑌𝑒𝑎𝑟_!+ 𝜀_!" Where dividends are the different measures of the dividend payout of the company (DVPTP, DTE, DTS and DTFFO), 𝑖 is an index for the industry, 𝑡 is an index for time (in years), 𝛽_! is a constant, 𝛽_! and 𝛽_! are the coefficients for the ownership and control variables , Σ𝐼𝑛𝑑𝑢𝑠𝑡𝑟𝑦_! are the industry dummies to check for industry effects, Σ𝑌𝑒𝑎𝑟_! are the year dummies to check for time effects and 𝜀!" is the disturbance term. Several indicators measure ownership: the size of the votes of the controlling shareholder, the size of the votes of the second largest

shareholder, and the INST1 FAM1, SPHERE1, INST1-INST2 and the FAM1-FAM2 dummy variables. The control variables are the size, leverage and profitability of the company.

4. RESULTS AND DISCUSSION

4.1 REGRESSION RESULTS

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4.1.1 THE VOTING RIGHTS OF THE CONTROLLING SHAREHOLDER

Table 4 shows the results of the independent variables on the propensity to pay dividend, a binary variable indicating if the firm paid a dividend or not. Table 5,6 and 7 show the results of the independent variables on the dividends to earnings, dividends to sales and dividends to earnings ratios respectively. In short, table 5,6 and 7 show the amount of dividends variables.

Looking at the votes of the controlling shareholder, results show a positive significant result between the votes of the controlling shareholder and the propensity to pay dividend. Meaning that the more voting rights the controlling shareholder has the higher the likelihood that the company pays a dividend. Also in table 5 and 7 we see positive relationships between the votes of the controlling shareholder and the dividend payout, however when we look at the dividends to sales (table 6) measurement we see a significant negative relationship. The positive relationship indicates that the higher the voting rights of the largest shareholder the more dividends are paid. However, the negative relationship explains the opposite.

Because I find more support for the positive relationship between the voting rights of the controlling shareholder and dividend payout I reject the first hypothesis. This contradicts the theory that higher levels of ownership concentration (in voting rights) of the controlling shareholders are associated with a higher probability of expropriation of the minority shareholders. This theory is assuming that the controlling shareholders hold private benefits of control by holding a larger amount of cash flow tied to the company rather than

distributing returns to the other shareholders, and therefore pay less dividends (Shleifer and Vishny, 1997). Maury and Pajuste (2002) found a significant negative relationship between the votes of the controlling shareholder and payout ratio, measured as the dividends to earnings ratio, suggesting that shareholders with a large proportion of voting rights tend to expropriate minority shareholders by reducing dividend payouts. Gugler and Yurtoglu (2003) found in their study on listed German companies that ownership concentration and payout ratios are negatively related and that large shareholders use their control to gain private benefits.

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advantage to some shareholders at the expense of other shareholders. Any such decision would be legally invalid if the decision would be challenged. Secondly, individual

shareholders have strong rights, every shareholder has the right to put items on the agenda of the shareholders’ meeting and exercise the voting rights of his/her shares. Thirdly, the possibility for minority shareholders, which hold at least 10 percent of the voting rights, to block certain resolutions at the shareholders’ meeting, for example decisions regarding mergers, change of capital structure and change of the company’s articles. Adding to this, (groups of) minority shareholders with at least 10 percent voting rights have the right to make a minimum dividend distribution, which could influence the dividend payout of the

companies (De Silanes et al., 1998; The Handbook of International Corporate Governance, 2009). Especially the right for (groups of) minority shareholders to demand a minimum dividend distribution could suggest the positive effects found between the voting rights of the controlling shareholder and the likelihood to pay a dividend. The positive relation with the amount of dividends paid can be explained due to the presence of another large shareholder, the controlling shareholder can be pushed by the second largest shareholder to pay higher dividends, for example due to a good monitoring mechanism of the second largest

shareholder (Faccio et al, 2001; Gugler and Yurtoglu, 2003).

4.1.2 THE VOTING RIGHTS OF THE SECOND LARGEST SHAREHOLDER For all the dividends payout estimates (DTE, DTS and DTFFO) I do not find empirical support for the relationship between the votes of the second largest shareholder and the dividend payout of the company. The relationship with the propensity to pay dividend (table 4) shows a positive and significant result, indicating that the higher the voting rights of the second largest shareholder the more likely the company pays a dividend. This is consistent with the findings of Gugler and Yurtoglu (2003), who suggested that large shareholders, besides the controlling shareholder, have the incentive to monitor and therefore are able to put pressure on the management of the company to pay a dividend.

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(2003) that a second large shareholder intensively monitors the controlling shareholder and entrust them to pay a dividend.

4.1.3 THE VOTING RIGHTS OF THE CONTROLLING AND THE SECOND LARGEST SHAREHOLDER

Adding both the controlling and the second largest shareholder, taking into account the counterbalancing power of the second largest shareholder, the coefficient of the controlling shareholder and the second largest shareholder slightly increases for the propensity to pay dividend measurement (table 4). This indicates that the controlling and second largest

shareholders are both more likely to pay a dividend due to the presence of each other. Table 5 shows that the coefficient of the controlling shareholder slightly increases when the second largest shareholder is added to the model. Meaning that the controlling shareholder pays more dividends in the presence of a large second shareholder, this indicates that the presence of a second large shareholder increase the dividend payments, which confirms the findings of Faccio et al. (2001) and Gugler and Yurtoglu (2003). For the other dividend payout measurements (DTS and DTFFO) there is no change in the coefficients observable. These findings only take into account the counterbalancing effect of the second largest shareholders, in a way of strengthen each other, but does not change anything of the above discussed

results.

4.1.4 TYPES OF SHAREHOLDERS Family ownership

As Maury and Pajuste (2002) suggested, the type of the controlling shareholder significantly influences the dividend policy of a company. First I will discuss the results for controlling family ownership. Table 4 shows a positive significant result between family shareholders and the propensity to pay dividends and table 7 shows a positive significant relationship with DTFFO, indicating that family controlled companies are likely to pay a dividend more often and pay higher dividends compared to non-family owned companies. This is rather

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dominated by one or a few major shareholders. The positive relationship found in my study can also be explained by the study of La Porta et al. (1999), arguing that family members frequently involve in management positions of the company and therefore family control might be an effective governance way of monitoring managers. In this way the company can provide efficient management, leading to lower agency costs than in other large or dispersed controlled companies. Empirical support for my findings can be found in the paper of Setia-Atmaja (2010), studying Australian listed companies. He found that family controlled companies appear to have higher levels of leverage and dividends payout than non-family controlled companies. According to Setia-Atmaja (2010) the positive impact of family control on dividend policy is due to the higher proportion of independent directors on family boards. Swedish rules of board independency can mitigate the opportunity for family owners to extract benefits of control. Sweden has strong rules for board independency, namely the rule that requires at least two board members that are independent of the major owners (owners with more than 10 percent of the voting or capital rights of the company) to be part of the board, whereas the majority of the directors have to be independent of the company. Thus, independent Swedish boards will keep family owners from extracting private benefits of control.

Institutional ownership

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Business sphere ownership

Thirdly, I discuss the results for the companies with a controlling shareholder that is part of one of the 20 largest business spheres in Sweden. Table 4,5 and 7 (DVPTP, DTE and DTFFO) show positive significant results, indicating that companies controlled by an owner that is part of a business sphere is more likely to pay a dividend and pay higher dividends compared to other controlling shareholders. The findings are consistent with the theoretical framework I used, therefore I accept the fourth hypothesis.

Institutional - institutional

Surprisingly, table 4 and 5 show negative significant results for the institutional-institutional dummy and the propensity to pay a dividend, suggesting that if the controlling shareholder and the second largest shareholder are both an institution the company is less likely to pay a dividend and pay less dividends in total. These findings do not correspond with the theoretical findings and therefore I reject hypothesis 7.

Theoretical explanations for this negative result can be found in the studies of Barclay and Smith (1988) and Brennan and Thakor (1990), stating that large informed shareholders do not face adverse selection problems because they have better information availability and thus prefer stock repurchases over dividend payouts. According to their studies institutional

investors prefer companies that pay out in the form of share repurchases instead of dividend payments because of tax benefits1_{. Since both the controlling and the second largest}

shareholder are institutions it could be possible that these companies are chosen because they ‘pay out’ in the form of share repurchases. This could explain the negative relationship with dividends payout.

Family- family

Table 4 shows a positive significant result for the relation between the family-family dummy and the propensity to pay dividend, meaning that if the controlling and the second largest shareholder are family owners the company is more likely to pay a dividend. However, if we compare the coefficients of the family-family dummy with the controlling family shareholder dummy we see that it has dropped from 1.360 to 0.579. This could suggest that if the second largest shareholder is also a family owner more subtraction of minority shareholder wealth

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takes place, indicating that the family shareholders both hold more benefits of control. We do not find any empirical evidence for the other dividend payout variables (table 5,6 and 7). Therefore I reject hypothesis 6.

Table 4: Results of the LOGIT estimation for the propensity to pay dividend (DVPTP) as dependent variable. Estimates of the LOGIT model for the dividend propensity to pay to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

Models 1 2 3 4 6 7 Variables Votes of the controlling shareholder 0.022*** (0.005) 0.030*** (0.006) Votes of the second

largest shareholder (0.017) 0.032* 0.038** (0.018) Controlling shareholder is a family 1.360*** (0.269) Controlling shareholder - institutional 0.631* (0.334) Controlling shareholder – business sphere 1.246*** (0.299) Institutional – institutional dummy -0.632* (0.384) Family – family dummy 0.579*** (0.220) Size 0.635*** (0.066) 0.751*** (0.082) 0.793*** (0.087) 0.669*** (0.071) 0.745*** (0.082) 0.791*** (0.085) Leverage -0.842 (0.650) -1.550** (0.759) -1.919** (0.781) -1.042 (0.658) -1.417* (0.749) -1.544** (0.754) Profitability 3.911*** (1.145) 4.559*** (1.350) 4.186*** (1.274) 4.100*** (1.221) 4.454*** (1.350) 4.467*** (1.359)

Year dummy Yes Yes Yes Yes Yes Yes

Industry dummy Yes Yes Yes Yes Yes Yes

LR statistic 252.14*** 195.80*** 218.93*** 258.27*** 195.33*** 199.91***

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Table 5: Results of the OLS estimation for dividend to earnings ratio (DTE) as dependent variable.

Estimates of the OLS model for the dividend to earnings ratio (DTE) to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

Models 1 2 3 4 6 7 Variables Votes of the controlling shareholder 0.008** (0.003) 0.016* (0.009) Votes of the second

largest shareholder (0.022) -0.024 (0.023) -0.025 Controlling shareholder is a family 0.230 (0.326) Controlling shareholder - institutional -0.026 (0.243) Controlling shareholder – business sphere 0.714** (0.346) Institutional – institutional dummy -0.760* (0.402) Family – family dummy -0.226 (0.195) Size 0.038** (0.018) (0.021) 0.023 (0.018) 0.031* (0.050) -0.022 (0.025) 0.011 (0.033) 0.001 Leverage 1.457 (1.337) 2.456 (2.118) 2.407 (2.093) 1.351 (1.238) 2.508 (2.084) 2.468 (2.087) Profitability -3.269** (1.442) -3.495** (1.725) -3.549** (1.785) -3.200** (1.362) -3.244** (1.565) -3.351** (1.591)

Random/fixed effects Random Random Random Random Random Random

F 1.342 1.253 1.248 1.272 1.203 1.182

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Table 6: Results of the OLS estimation for dividends to sales ratio (DTS) as dependent variable.

Estimates of the OLS model for the dividends to sales (DTS) to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

Models 1 2 3 4 6 7 Variables Votes of the controlling shareholder -0.001** (0.000) -0.001** (0.000) Votes of the second

largest shareholder -0.000 (0.000) -0.000 (0.000) Controlling shareholder is a family -0.003 (0.008) Controlling shareholder - institutional -0.009 (0.008) Controlling shareholder – business sphere -0.004 (0.009) Institutional – institutional dummy -0.005 (0.007) Family – family dummy 0.005 (0.005) Size 0.009** (0.004) 0.008** (0.004) 0.007* (0.004) 0.011*** (0.004) 0.008** (0.004) 0.008** (0.003) Leverage -0.050*** (0.019) -0.030* (0.017) -0.030* (0.017) -0.053*** (0.018) -0.030* (0.017) -0.032* (0.017) Profitability 0.011 (0.021) -0.008 (0.022) -0.008 (0.022) 0.013 (0.020) -0.006 (0.022) -0.010 (0.022)

Random/fixed effects Fixed Fixed Fixed Fixed Fixed Fixed

F 7.718*** 6.932*** 6.946*** 8.824*** 6.953*** 6.959***

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Table 7: Results of the OLS estimation for dividends to funds from operations ratio (DTFFO) as dependent variable.

Estimates of the OLS model for the dividends to funds from operations ratio (DTFFO) to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

Models 1 2 3 4 6 7 Variables Votes of the controlling shareholder 0.002** (0.001) 0.002** (0.001) Votes of the second

largest shareholder 0.004 (0.006) 0.004 (0.006) Controlling shareholder is a family 0.124* (0.071) Controlling shareholder - institutional 0.127 (0.079) Controlling shareholder – business sphere 0.111** (0.053) Institutional – institutional dummy -0.062 (0.058) Family – family dummy 0.010 (0.030) Size 0.028*** (0.007) 0.028*** (0.009) 0.029*** (0.008) 0.029*** (0.006) 0.026*** (0.008) 0.027*** (0.008) Leverage -0.504*** (0.161) -0.336*** (0.104) -0.343*** (0.104) -0.505*** (0.167) -0.320*** (0.107) -0.328*** (0.108) Profitability -0.374 (0.306) -0.261 (0.311) -0.256 (0.316) -0.407 (0.321) -0.271 (0.332) -0.287 (0.334)

Random/fixed effects Random Random Random Random Random Random

F 2.406*** 1.971*** 1.923*** 2.199*** 1.956*** 1.939***

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4.2 ROBUSTNESS CHECKS

TOBIT estimations instead of OLS estimations

Several other studies (e.g. Al-Najjar and Kilincarslan, 2016; Mancinelli & Ozkan, 2006) on the relationship between ownership structures and dividend use a TOBIT regression instead of an OLS regression for the dependent variables dividends to earnings (DTE), dividends to sales (DTS) and dividends to funds from operations (DTFFO) ratios. I used OLS regressions because in this study only companies with positive net earnings were used, therefore the dataset gives a positive dividends to earnings ratio and positive profitability’s (used as control variable) and thus left censoring at zero from a TOBIT analysis is not necessary. However, for robustness purposes, I re-estimate the results of tables 5,6 and 7 with TOBIT regressions instead of OLS regression. Table 8,9 and 10 reveal the results of the TOBIT estimations based on the same set of independent variables used in tables 5,6 and 7. Overall, the TOBIT

estimations do not give other outcomes as the OLS estimations, only some of the coefficients are slightly different. However, results show that the TOBIT estimations give positive

significant results for the controlling family shareholder and the DTE, DTS and DTFFO ratios. OLS estimations only found a positive result for the DTFFO ratio, since I already based my discussion on this positive result this is not a problem.

Presence of a second large shareholder

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Table 8: Results of the TOBIT estimation for dividend to earnings ratio (DTE) as dependent variable.

Estimates of the TOBIT regression for the dividend to earnings ratio (DTE) to the

independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

largest shareholder (0.046) 0.010 (0.046) 0.011 Controlling shareholder is a family 1.851* (0.791) Controlling shareholder - institutional 0.626 (1.026) Controlling shareholder – business sphere 1.083** (0.812) Institutional – institutional dummy -1.873 (1.310) Family – family dummy 0.637 (0.686) Size 0.056*** (0.013) 0.069*** (0.017) 0.701*** (0.168) 0.536*** (0.145) 0.629*** (0.165) 0.695*** (0.175) Leverage 1.123 (1.639) 1.713 (2.170) 1.536 (2.170) 0.859 (1.643) 2.052 (2.171) 1.648 (2.167) Profitability -0.070 (3.013) (3.808) 1.129 (3.836) 1.068 (3.008) -0.080 (3.790) 1.562 (3.809) 0.875

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Table 9: Results of the TOBIT regression for dividends to sales ratio (DTS) as dependent variable.

Estimates of the TOBIT regression for the dividends to sales (DTS) to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and * indicate significance at the 1, 5 and 10% levels, respectively.

Models 1 2 3 4 6 7 Variables Votes of the controlling shareholder -0.000*** (0.000) -0.000*** (0.000) Votes of the second

largest shareholder -0.000 (0.000) 0.000 (0.000) Controlling shareholder is a family 0.023*** (0.007) Controlling shareholder - institutional 0.005 (0.009) Controlling shareholder – business sphere 0.012 (0.007) Institutional – institutional dummy -0.011 (0.008) Family – family dummy 0.007 (0.004) Size 0.009*** (0.001) 0.006*** (0.001) 0.007*** (0.001) 0.010*** (0.001) 0.006*** (0.001) 0.007*** (0.001) Leverage -0.046** (0.015) -0.024* (0.013) -0.025** (0.013) -0.050*** (0.015) -0.021* (0.013) -0.024* (0.013) Profitability 0.169*** (0.025) 0.187*** (0.021) 0.187*** (0.020) 0.169*** (0.026) 0.188*** (0.021) 0.184*** (0.021)

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Table 10: Results of the TOBIT regression for dividends to funds from operations ratio (DTFFO) as dependent variable.

Estimates of the TOBIT regression for the dividends to funds from operations ratio (DTFFO) to the independent variables, controlled for size, leverage and profitability. Based on a sample of 167 companies with positive net earnings and funds from operations. ***, ** and *

indicate significance at the 1, 5 and 10% levels, respectively.

largest shareholder 0.008 (0.005) 0.008* (0.005) Controlling shareholder is a family 0.308*** (0.091) Controlling shareholder - institutional 0.192 (0.118) Controlling shareholder – business sphere 0.245** (0.090) Institutional – institutional dummy -0.174 (0.134) Family – family dummy 0.073 (0.071) Size 0.084*** (0.015) 0.085*** (0.017) 0.090*** (0.018) 0.090*** (0.017) 0.081*** (0.017) 0.088*** (0.018) Leverage -0.635*** (0.191) -0.500** (0.227) -0.520** (0.227) -0.666*** (0.192) -0.449** (0.228) -0.486** (0.227) Profitability 0.069 (0.341) -0.352 (0.386) 0.354 (0.387) 0.019 (0.341) 0.336 (0.385) 0.276 (0.386)

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5. CONCLUSION

With this paper I tried to give an answer to the question how the relationship of ownership structures on dividend policy of Swedish listed companies is organized. Companies in the UK, US and Canada often have more dispersed ownership and therefore have less

information asymmetry, resulting in lower agency costs and thus higher dividend pay (Brav et al., 2005; La Porta et al., 1999). However, Swedish companies are most often dominated by one or a few major shareholders, mostly family owners (Faccio et al., 2001), so assuming the above mentioned theory would this lead to higher agency costs and lower dividends? And, how are different types of ownership structures related to dividends in Sweden?, as La Porta et al. (1999) and Maury and Pajuste (2002) mentioned that the type of shareholders

significantly influence the dividends payout.

Results indicate that Swedish listed companies are mostly dominated by one or a few major shareholders. These major shareholders are mostly family owners followed by owners part of one of the 20 largest business spheres in Sweden, while institutions show relatively low amounts of controlling shareholdings. I find that companies with controlling family owners are associated with a higher likelihood of paying dividends compared to non-family controlled companies, institutional controlled companies do also have a higher likelihood of paying dividends compared to non-institutional controlled companies and that business sphere owned companies are also associated with a higher likelihood to pay dividends compared to other owners. Besides that, I find that family ownership and ownership by a business sphere owner have a significantly positive impact on the amount of dividend payments. When the controlling shareholder and the second largest shareholder are institutions the company is associated with a less likelihood of paying dividends and lower dividend payments. When the controlling and second largest shareholder are a family shareholder, it is more likely that the company pays a dividend. Overall, I find that higher voting rights of the controlling as well as the second largest shareholder are associated with a higher likelihood to pay a dividend and with higher dividend payments.

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A limitation and recommendation for further research is that this study only looked at the voting rights of the shareholders, which implies who has the control. It would be

interesting to examine whether there are differences when comparing the voting rights and equity rights of the shareholders. Equity rights could give an indication of possible agency conflicts, for example in family founded companies where the controlling family mostly hold large amount of voting rights compared to their equity stake tied to the company (Morck and Yeung, 2003). Adding to this, half of the Swedish listed companies use shares with multiple voting rights, so called A and B shares, sometimes with 10 times the voting rights of other shares (The Handbook of International Corporate Governance, 2009). Making a comparison between these A and B shares could give different outcomes, therefore it could be an

interesting thing to study. Further research can also look at other types of ownership

structures, such as foreign ownership and state ownership. Manos (2002) suggests that foreign investors with large shareholdings might have information disadvantages because of

geological, cultural and political differences, therefore monitoring could be inefficient and more costly. Lastly, it is interesting to take stock repurchases into account, because I found a negative relationship between dividends and institutional ownership of the controlling and second largest shareholder. This could be caused because they prefer stock repurchases over dividends.

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