The Influence of Agency Costs on Dividend Policy in an Emerging Market: Evidence from the Tehran Stock Exchange

Dividend policy has long been an issue of interest in the financial literature. To date, a number of studies published on agency costs and dividend policy but most of them are on developed markets, It is well known that the emerging markets are quite different from developed markets in all respects. So, the existing published evidence is of limited relevance in identifying the influence of agency costs on dividend policy in an emerging market. The major objective of this paper is to identify the influence of agency costs on dividend policy in an emerging market. The Tehran Stock Exchange (TSE) listed non-financial sector companies for the period of 1997-2002 are considered as the sample of the study. Ordinary Least Square regression model employs to identify the influence of agency costs on dividend policy in an emerging market. The results indicate that number of common stockholders, collateralizable assets, and free cash flow positively related to dividend pay-out ratio. All of these coefficients are in the predicted direction and are quite consistent with the findings of Rozeff’s study (1982) as well as those conducted so far. However, these results support Jensen’s (1986) free cash flow hypothesis. Finally, these results suggest the influence of agency costs on dividend policy in an emerging market,