Are Large Shareholders Conducting Influential Monitoring in Emerging Markets? An Investigation into the Impact of Large Shareholders on Dividend Decisions: The Case of Kuwait

This paper examines the relationship between large shareholders and dividend payout decisions based on agency theory and investigates whether large shareholders are monitoring effectively. The study uses a panel dataset of 37 non-financial firms listed on the Kuwait Stock Exchange as an emerging market between 1999 and 2003. Random-effects probit models are used to examine the impact of large shareholders, firm size, free cash flows, investment opportunity, business risk, and firm profitability on the dividend amounts firms paid. Large shareholders are disaggregated into three types institutions, governments, and large individual shareholders to determine if they influence the dividend paid. The results suggest that government is the only large shareholder that plays a significant monitoring role on dividend decisions. Furthermore, the results show that government ownership and firm profitability increase the probability of paying dividends, while the leverage ratio decreases the probability. Overall, the findings indicate that companies listed on the Kuwait Stock Exchange pay dividends to reduce agency conflict and avoid exploiting minority shareholders.