CEO overconfidence and dividend policy
AbstractWe develop a model of the effect of CEO overconfidence on dividend policy and empirically examine many of its predictions. Consistent with our main prediction, we find that the level of dividend payout is lower in firms managed by overconfident CEOs. We document that this reduction in dividends associated with CEO overconfidence is greater in firms with lower growth opportunities, lower cash flow, and greater information asymmetry. We also show that the magnitude of the positive market reaction to a dividend-increase announcement is lower for firms managed by overconfident CEOs. Our overall results are consistent with the predictions of our model.
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Bibliographic InfoPaper provided by Federal Reserve Bank of Chicago in its series Working Paper Series with number WP-09-06.
Date of creation: 2009
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-10-31 (All new papers)
- NEP-CBE-2009-10-31 (Cognitive & Behavioural Economics)
- NEP-MIC-2009-10-31 (Microeconomics)
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- Campbell, T. Colin & Gallmeyer, Michael & Johnson, Shane A. & Rutherford, Jessica & Stanley, Brooke W., 2011. "CEO optimism and forced turnover," Journal of Financial Economics, Elsevier, vol. 101(3), pages 695-712, September.
- Michele Dell'Era & Luis Santos-Pinto, 2011. "Entrepreneurial Overconfidence, Self-Financing and Capital Market Efficiency," Cahiers de Recherches Economiques du DÃ©partement d'EconomÃ©trie et d'Economie politique (DEEP) 11.06, Université de Lausanne, Faculté des HEC, DEEP, revised Nov 2012.
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