Insider ownership impacts market reactions to dividend changes, reducing agency costs.
The study shows that when company insiders own more shares, the market reacts less strongly to changes in dividends. This effect is stronger when insiders control voting shares they don't own, and weaker if a family owns a block of shares. The results are more pronounced for companies with low Tobin's Q values. The findings suggest that increasing dividends can help reduce the agency costs associated with excess cash flow.