Founding Family Ownership and Dividend Smoothing

This paper examines the relation between ownership structure and dividend smoothing by comparing the degree of dividend smoothing engaged in by family and non-family firms. We expect family firms to exhibit less dividend smoothing behaviour than non-family firms due to lower agency conflicts and less information asymmetry experienced by family firms. Based on a sample of S&P 500 firms from 1997 to 2007, we find that the degree of dividend smoothing engaged in by the family firms is much less than the nonfamily firms. Further we find that the source of the difference arises from the family firms’ willingness to increase their dividends, rather than their willingness to cut dividends in response to significant earnings changes. Overall our results indicate a strong interaction between ownership structure and dividend smoothing.