The impact of employee friendly practices on dividend payments: Evidence from emerging economies

Abstract Drawing on stakeholder and agency theories, we examine how employee friendly practices impact dividend payments in emerging countries. Using data from 862 firms and 6,071 firm-year observations from 17 emerging countries, we find that the employee friendly practices are negatively related to the dividend payments. This relationship is found to be stronger for government owned firms. We further examine the ‘agency problems’ and ‘future investment’ as possible channels through which employee friendly practices may lead firms to pay low dividends. We find the support for the future investment channel. Lastly, we examine the value effect of employee friendly treatment and find that employee friendly practices increase firm performance in emerging markets which lends support to the effectiveness of the investment channel.