Payout Policies and Agency Conflicts in State-Owned Enterprises: Empirical Evidence from German Official Statistics

Abstract

This study examines the payout policies of modern state-owned enterprises (SOEs) using unique official statistics on German SOEs from 2003 to 2014. The findings reveal that agency conflicts significantly influence SOEs’ payout behavior, leading to payout smoothing over time. Vertical agency costs, arising from owner-manager conflicts, and horizontal agency costs, stemming from owner-owner conflicts, are shown to intensify this smoothing. In minority-controlled SOEs, higher ownership dispersion further amplifies payout smoothing due to free-rider in monitoring. Our results highlight payouts as a disciplinary mechanism to mitigate agency costs. Overall, SOEs’ payout policies are comparable to dividend policies of private-sector firms.