Analysis of dividend policy of dual and single class U.S corporations

Despite the extensive literature on dividend policy, little is known about the relationship between controlling shareholders and the determination of dividend policy, especially in dual class companies. Three potential dividend policy hypotheses are examined. We show that dual class companies pay out less cash dividends and repurchase fewer shares and that cash distributions decrease as the divergence of voting and cash flow rights widens. This is consistent with both the private benefits and family legacy hypotheses. However, an examination of executive compensation and family participation on the board indicates that lower dividends are consistent with the private benefits hypothesis.