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Do corporate managers skimp on shareholders' dividends to protect their own retirement funds?

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  • Eisdorfer, Assaf
  • Giaccotto, Carmelo
  • White, Reilly

Abstract

What is the impact of long-term executive compensation, particularly large pension payouts, on the firm's current dividend policy? We argue that managers with high pension holdings are less likely to adopt a high dividend policy that can risk their future pension payouts. Using a hand-collected actuarial pension dataset we show that (i) dividend payments are significantly lower when manager compensation relies more heavily on pension payouts; (ii) higher compensation leverage and inside debt have a significant negative effect on dividend payments net of stock repurchases; and (iii) the negative effect of pension on dividend is significantly weaker when pensions are protected in a pre-funding rabbi trust. We show further that this agency behavior reduces firm performance.

Suggested Citation

  • Eisdorfer, Assaf & Giaccotto, Carmelo & White, Reilly, 2015. "Do corporate managers skimp on shareholders' dividends to protect their own retirement funds?," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 257-277.
    • Handle: RePEc:eee:corfin:v:30:y:2015:i:c:p:257-277
    DOI: 10.1016/j.jcorpfin.2014.12.005
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    3. Nilakshi Borah & Hui Liang James & Jung Chul Park, 2020. "Does CEO inside debt compensation benefit both shareholders and debtholders?," Review of Quantitative Finance and Accounting, Springer, vol. 54(1), pages 159-203, January.
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    6. Gurmeet S. Bhabra & Harjeet S. Bhabra & Ashrafee T. Hossain, 2022. "CEO inside debt and the acquisition of private targets," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 62(2), pages 2163-2202, June.
    7. Hasan, Mostafa Monzur & Hossain, Ashrafee & Hossain, Takdir, 2023. "CEO inside debt holdings and credit ratings," Journal of Contemporary Accounting and Economics, Elsevier, vol. 19(1).
    8. Dang, Viet A. & Phan, Hieu V., 2016. "CEO inside debt and corporate debt maturity structure," Journal of Banking & Finance, Elsevier, vol. 70(C), pages 38-54.
    9. Hao Li & Jinsha Zhao, 2020. "Inside debt and firm risk‐taking: Evidence from the UK pension reform," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 47(9-10), pages 1316-1364, October.
    10. Balachandran, Balasingham & Khan, Arifur & Mather, Paul & Theobald, Michael, 2019. "Insider ownership and dividend policy in an imputation tax environment," Journal of Corporate Finance, Elsevier, vol. 54(C), pages 153-167.
    11. Kabir, Rezaul & Li, Hao & Veld-Merkoulova, Yulia, 2018. "Do managers act opportunistically towards the end of their career?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 56(C), pages 218-232.
    12. Gurmeet S. Bhabra & Ashrafee T. Hossain, 2023. "Asset redeployability and CEO inside debt," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(4), pages 4299-4331, December.
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    15. Freund, Steven & Latif, Saira & Phan, Hieu V., 2018. "Executive compensation and corporate financing policies: Evidence from CEO inside debt," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 484-504.
    16. Sheikh, Shahbaz, 2021. "CEO inside debt, market structure and payout policy," International Review of Financial Analysis, Elsevier, vol. 76(C).
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    More about this item

    Keywords

    Executive compensation; Dividend policy; Agency theory;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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