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Do tournament incentives affect corporate dividend policy?

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  • Chowdhury, Hasibul
  • Rahman, Shofiqur

Abstract

This paper examines whether promotion-based tournament incentives affect corporate dividend payouts. Using the pay gap between the CEO and non-CEO executives as a proxy for tournament incentives, we find that tournament incentives are negatively related to corporate dividends. Further analyses show that the negative effect is stronger in firms that are financially constrained, have volatility in cash flows and earnings, and operate in less homogeneous industries. We also provide evidence that tournament incentives are positively related to payout flexibility. Our findings are consistent with the notion that firms reduce dividends to mitigate potential cash shortfalls associated with increased risk-taking induced by tournament incentives.

Suggested Citation

  • Chowdhury, Hasibul & Rahman, Shofiqur, 2023. "Do tournament incentives affect corporate dividend policy?," Journal of Banking & Finance, Elsevier, vol. 152(C).
    • Handle: RePEc:eee:jbfina:v:152:y:2023:i:c:s0378426623001012
    DOI: 10.1016/j.jbankfin.2023.106877
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    Keywords

    Tournament incentives; Dividend policy;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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