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Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation

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  • Chen, Jie
  • Song, Wei
  • Goergen, Marc

Abstract

We examine how firms' dividend policy affects the initial compensation of their newly appointed CEOs. We focus on newly appointed CEOs to isolate the effect of dividends on compensation and to provide new insights into an aspect largely neglected by compensation research. We show that the dividend payout is positively related to new CEO compensation. Further, the positive effect of dividends is stronger for firms with no dividend cuts over the past two, three and four years, firms with relatively high institutional ownership, and those with strong boards, consistent with new CEOs receiving higher pay as compensation for greater dividend pressure.

Suggested Citation

  • Chen, Jie & Song, Wei & Goergen, Marc, 2019. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 458-481.
  • Handle: RePEc:eee:corfin:v:56:y:2019:i:c:p:458-481
    DOI: 10.1016/j.jcorpfin.2019.04.004
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    More about this item

    Keywords

    CEO compensation; New CEOs; Dividend policy; Corporate governance;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • 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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