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Stakeholder orientation and corporate payout policy: Insights from state legal shocks

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  • Ni, Xiaoran
  • Song, Wei
  • Yao, Jiaquan

Abstract

We employ a difference-in-differences estimation approach to examine the impact of stakeholder orientation on corporate payout policy. The empirical test exploits the enactment of US state-level constituency statutes, which allow directors to consider stakeholders and long-term interests in corporate decision making. We find that firms incorporated in states that have adopted constituency statutes significantly reduce share repurchases, whereas the effects of statute enactment on total payout and dividend payments are marginal and insignificant, respectively. We further show that the negative statute effect on share repurchases is more pronounced for firms that are in financial distress or are close to default, and firms in consumer-focused and high-polluting industries. Overall, our findings indicate that promoting stakeholder orientation can have a significant impact on corporate payout decisions.

Suggested Citation

  • Ni, Xiaoran & Song, Wei & Yao, Jiaquan, 2020. "Stakeholder orientation and corporate payout policy: Insights from state legal shocks," Journal of Banking & Finance, Elsevier, vol. 121(C).
  • Handle: RePEc:eee:jbfina:v:121:y:2020:i:c:s0378426620302326
    DOI: 10.1016/j.jbankfin.2020.105970
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    Keywords

    Stakeholder orientation; Constituency statutes; Share Repurchases; Payout Decision;
    All these keywords.

    JEL classification:

    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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