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<p>The extant literature shows that dividend smoothing is determined by many firm characteristics but the effect of foreign ownership on dividend smoothing has not been fully addressed. Dividend smoothing may be an outcome of strong corporate governance or a substitute for weak corporate governance. In Vietnam, legal regulations on corporate governance are inadequately effective while firms and investors have little experience in corporate governance. This institutional environment is potential for the substitute mechanism. Therefore, it is a promising laboratory to investigate the effect of foreign ownership on dividend smoothing in an emerging market. In our research model, the dependent variable is the speed of dividend adjustment. It is measured by two approaches proposed by Lintner (<CitationRef CitationID="CR32">1956</CitationRef>) and Leary and Michaely (<CitationRef CitationID="CR31">2011</CitationRef>). With a sample of 2,564 observations from 268 firms over the period 2011–2022, we find that foreign ownership negatively affects dividend smoothing. This negative effect is stronger for financially constrained firms. Our findings imply that firms use dividend smoothing as a substitute for weak corporate governance. Policy makers should have policies to attract foreign investors which help domestics firms improve corporate governance. Moreover, investors should invest in firms with high foreign ownership.</p>

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Foreign ownership and dividend smoothing in an emerging market: is the outcome or the substitute model effective?

  • 期刊论文

  • 发表日期：

    2026年4月9日

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  • Van Phong Nguyen,
  • Quoc Trung Tran

摘要

The extant literature shows that dividend smoothing is determined by many firm characteristics but the effect of foreign ownership on dividend smoothing has not been fully addressed. Dividend smoothing may be an outcome of strong corporate governance or a substitute for weak corporate governance. In Vietnam, legal regulations on corporate governance are inadequately effective while firms and investors have little experience in corporate governance. This institutional environment is potential for the substitute mechanism. Therefore, it is a promising laboratory to investigate the effect of foreign ownership on dividend smoothing in an emerging market. In our research model, the dependent variable is the speed of dividend adjustment. It is measured by two approaches proposed by Lintner (1956) and Leary and Michaely (2011). With a sample of 2,564 observations from 268 firms over the period 2011–2022, we find that foreign ownership negatively affects dividend smoothing. This negative effect is stronger for financially constrained firms. Our findings imply that firms use dividend smoothing as a substitute for weak corporate governance. Policy makers should have policies to attract foreign investors which help domestics firms improve corporate governance. Moreover, investors should invest in firms with high foreign ownership.