Document Type
Article
Source of Publication
International Review of Financial Analysis
Publication Date
1-1-2021
Abstract
© 2020 Elsevier Inc. Agency theory suggests that entrenched managers are less likely to pay dividends. However, according to the catering theory, external pressures from investors can force managers to increase dividend payments. Hence, we test whether entrenched managers respond to investor demand for dividends and share repurchases. Using a large sample of 9677 US firms over the period 1990–2016 (i.e. a total of 80,478 firm-year observations), we test and find evidence that managerial entrenchment negatively impacts dividend payments. Our findings suggest that catering effects weaken the negative impact of managerial entrenchment on payout policy and that in firms with entrenched managers an increase in the propensity to pay dividends is conspicuous only when there is external investor demand for dividends. Our results indicate that while insiders and institutional owners might not necessarily favour dividend payments, firms respond to catering incentives when dominated by insiders but not institutional owners. Overall, our findings are consistent with the view that dividend payments are a result of external pressures to reduce agency problems associated with firms run by entrenched managers.
DOI Link
ISSN
Publisher
Elsevier BV
Volume
73
First Page
101600
Disciplines
Business
Keywords
Catering theory, Dividends, Managerial entrenchment, Payout policy, Share repurchases
Scopus ID
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.
Recommended Citation
Gyimah, Daniel and Gyapong, Ernest, "Managerial entrenchment and payout policy: A catering effect" (2021). All Works. 2316.
https://zuscholars.zu.ac.ae/works/2316
Indexed in Scopus
yes
Open Access
yes
Open Access Type
Green: A manuscript of this publication is openly available in a repository