Controlling shareholders and payout policy: Do founding familieshave a special “taste for dividends”?

Around the world (with the U.S. and U.K. as exceptions) concentrated ownershipstructures and controlling shareholders are predominant even among listed firms. We providenovel empirical evidence how such controlling shareholders, in particular founding families,affect payout policy decisions. Thereby, we use a unique panel dataset of 660 listed firms inthe 1995 to 2006 period from Germany, an economy that is traditionally characterized byconcentrated ownership structures and strong family capitalism. We find that family firmsexhibit a higher propensity and level for both dividend payments and total payouts. This resultis driven by family ownership rather than family management. Conflicts between thefounding family and non-family controlling shareholders and tensions within the foundingfamily are important determinants of payout policy. While family blockholder increase thepropensity for a payout to shareholders, outside blockholder have an opposing effect. Finally,we find that common action problems and conflicts among a multitude of family membersand/or generations in “real family firms” lead to a higher “taste for dividend payments” ifcompared to firms dominated by the founder (“founder-controlled firms”). Our results proveto be stable against a battery of robustness tests including a matching estimator technique todemonstrate causal effects. Overall, our paper contributes to two strands of literature: theemerging literature on family firms and the more mature literature on corporate payout policy.