This paper analyses the agency expl

This paper analyses the agency explanation for the cross-sectional variation of
corporate dividend policy in the UK by looking at the managerial entrenchment
hypothesis drawn from the agency literature. Consistent with predictions, a significant
U-shaped relationship between dividend payout ratios and insider ownership is
observed for a large (exceeding 600 firms) sample of UK companies and two distinct
periods. These results strongly suggest the possibility of managerial entrenchment
when insider ownership reaches a threshold of around 30%. Evidence is also
presented that non-beneficial holdings by insiders can lead to entrenchment in
conjunction with shares held beneficially.