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Dispersed ownership structures and higher dividend payment

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Why do firms with more-diverse shareholder bases typically pay higher dividends than private firms or public firms with more concentrated ownership structures? How are fixed dividends used as a bonding (commitment) mechanism by managers of firms with dispersed ownership structures and large amounts of free cash flow?

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This posting explains why firms with a more diverse shareholder base typically pay higher dividends than firms with more concentrated ownership structures. It also explains as to how fixed dividends are used as a bonding mechanism by managers of these firms.

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The agency cost contracting model of dividend payments predicts that managers initiate dividend payments primarily to overcome the agency costs that arise once a publicly traded firms ownership structure ...

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