Corporate Governance and Dividend Reinvestment Plans: Insights from Imputation Tax in Australia

This paper investigates the supply of Dividend Reinvestment Plans (DRPs) in relation to corporate governance and imputation tax system in Australia. Since DRPs are popular among large firms, we compiled the data of 300 largest companies listed on the Australian stock exchange (ASX300) during 2001-2013. Tobit regression method is used to estimate the models. Results indicate that good corporate governance leads to the higher supply of DRPs. We also found that franked dividend and heavily discounted DRPs weaken the positive association between governance and DRPs, illustrating the importance of institutional settings. Our findings imply that good corporate governance should consider a variety of clientele demands for dividend policy.

Automated summary

This study investigates the supply of Dividend Reinvestment Plans (DRPs) in Australia, finding that good corporate governance leads to higher DRP supply. However, the presence of franked dividends and heavily discounted DRPs weaken this positive association, highlighting the importance of institutional settings in influencing dividend policy decisions.