Dividend policy, managerial ownership and debt financing: A non-parametric perspective

This paper examines the relation between dividend policy, managerial ownership and debt-financing for a large sample of firms listed on NYSE, AMEX and NASDAQ. In addition to standard parametric estimation methods,weusea semi-parametric approach,whichhelps capturemoreeffectivelynon-linearities in thedata. In linewith the alignment effect ofmanagerial ownership, our results support a negative relationship between managerial ownership and dividends when managerial ownership is at relatively low levels. However, this negative relationship turns into a positive one at very high levels of managerial ownership. We also find that the nature of the relationship between managerial ownership and dividends may be more complex than it has been previously thought, and it also differs significantly across firmswith different levels of debt/financial constraints. The results are consistent with the view that agency theory provides useful insights but cannot fully explain how firms determine their dividend policy. © 2014 Elsevier B.V. All rights reserved.