Does corporate governance determine dividend payouts in Poland?

This study examines the relation between corporate governance practices measured by the Transparency Disclosure Index (TDI) and dividend payouts in Poland. Our empirical approach lies in constructing measures of the quality of the corporate governance in 110 non-financial companies listed on the Warsaw Stock Exchange between 1998 and 2004.We find evidence that an increase in the TDI or its sub-indices leads to an increase in the dividend to cash flow ratio. These results support the hypothesis that companies with weak shareholder rights pay dividends less generously than do firms with high corporate governance standards. We assume that well protected shareholders in Poland use their power to extract dividends, thus our results seem to support the outcome agency model of dividends.