Paying dividends can be helpful in reducing agency conflicts between shareholders and managers because dividend payouts constrain managers’ ability to invest in negative NPV projects that benefit the managers at the expense of shareholders.
Paying dividends is likely to intensify the agency conflict between bondholders and shareholders, as it represents a transfer of wealth from bondholders to shareholders.
A dividend payment is not usually associated with an increase in agency conflict between bondholders and managers, but can be.
