Do Firms in Developing Countries Use Dividend Policy to Build Trust with Investors?

How do companies based in countries with weak government institutions earn the trust of minority investors and raise capital? Where the rule of law and government enforcement cannot control corruption, insiders seem free to expropriate their company’s resources, making it essential for them to somehow assure  potential outside investors that they can be trusted. Establishing trust is especially important for growing firms that have profitable investment opportunities and are most in need of external capital.

One promising approach to building trust might be to pay a dividend – there is credibility in cash. However, paying a fixed dividend consistently, as … Read more