How Does the Largest Shareholder Affect Dividends?

Focusing on the legal protection of minority shareholders in Japan, which suggests that manager-owned firms are better governed than corporation-owned firms, this study presents a new test of two dividend models: the substitute model and the outcome model. In support of the latter, I find that manager-owned firms pay higher dividends than corporation-owned firms. The paper also examines the association between ownership by the largest shareholder and dividend payments. I find an inverted U-shaped relationship for manager-owned firms and a U-shaped relationship for corporation-owned firms between them. These results can be explained by the benefits and drawbacks of concentrated ownership.