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Dividend initiations are an economically significant event that has important implications for a firm’s future financial capacity. Given the market’s expectation of a consistent payout, managers of IPO firms must approach the initial dividend decision cautiously. We compare the long-run performance of IPO firms that initiated a dividend with that of similarly matched non-payers, and find robust results that firms which initiated a dividend perform significantly better up to five years after the initiation date. Further tests show that the post-initiation firm performance is explained mostly by dividend theory of signalling rather than free cash flow. [ABSTRACT FROM AUTHOR]

This study seeks to understand how dividend policy is related to ownership and control structure in Hong Kong, where family-controlled firms are widespread. Using data from a sample of 324 listed Hong Kong firms in 2005, our results show that a firm's propensity to pay dividends and the amount of payout decrease with divergence of the controlling shareholder's cash flow rights from control rights. Small to medium size family-controlled firms are significantly more likely to pay dividends and have higher dividend payouts than large family-controlled firms; however, this is moderated by the discrepancy between the controlling shareholder's cash flow rights and voting rights. This study provides empirical support for the expropriation hypothesis. Important academic implications include the need for a more accurate measure of potential expropriation and the need to control for firm size in tests of the relationship between payout policy and ownership structure and control. This study offers insights to policy makers interested in enhancing the legitimacy of corporate governance within their nation. In particular, it highlights that improvements in corporate governance will be most beneficial in smaller firms, where potential expropriation is greatest. [ABSTRACT FROM AUTHOR]