IDEAS home Printed from https://ideas.repec.org/a/eme/rafpps/v8y2009i1p87-116.html
   My bibliography  Save this article

Why are firms with entrenched managers more likely to pay dividends?

Author

Listed:
  • Hoje Jo
  • Carrie Pan

Abstract

Purpose - The purpose of this paper is to examine the relation between managerial entrenchment and dividend policy for a large number of US industrial firms and examine the relative importance of three competing explanations behind the empirical association between managerial entrenchment and dividend policy, namely, the entrenchment irrelevance hypothesis, the dividend signaling hypothesis, and the optimal entrenchment hypothesis. Design/methodology/approach - Utilizing all firms in the Investor Responsibility Research Center database, Compustat and center for research in security prices (CRSP), this paper investigates firm's propensity to pay dividends based on various logit and Tobit regressions as a function of managerial entrenchment measured by Gomperset al.G index after controlling for known determinants of firms' dividend decisions during the period from 1990 to 2003. Findings - Results show that firms with entrenched managers are more likely to pay dividends. Their high propensity to pay persists over time. A large cash reserve can be used to deter hostile takeovers. Paying dividends reduces cash holdings, leaving the firm more vulnerable to hostile takeovers. In equilibrium, value‐maximizing firms with weak investment opportunities provide managers against takeovers to induce them to distribute cash rather than build a warchest against unwanted takeovers. Originality/value - The main finding confirms the belief that firms choose a combination of anti‐takeover provisions and dividend policy to maximize shareholder value, evidence in favor of the optimal entrenchment hypothesis.

Suggested Citation

  • Hoje Jo & Carrie Pan, 2009. "Why are firms with entrenched managers more likely to pay dividends?," Review of Accounting and Finance, Emerald Group Publishing Limited, vol. 8(1), pages 87-116, February.
    • Handle: RePEc:eme:rafpps:v:8:y:2009:i:1:p:87-116
    DOI: 10.1108/14757700910934256
    as

    Download full text from publisher

    File URL: https://www.emerald.com/insight/content/doi/10.1108/14757700910934256/full/html?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://www.emerald.com/insight/content/doi/10.1108/14757700910934256/full/pdf?utm_source=repec&utm_medium=feed&utm_campaign=repec
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1108/14757700910934256?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Paul McGuinness & Kevin Lam & João Vieito, 2015. "Gender and other major board characteristics in China: Explaining corporate dividend policy and governance," Asia Pacific Journal of Management, Springer, vol. 32(4), pages 989-1038, December.
    2. Chen, Ni-Yun & Liu, Chi-Chun, 2019. "Open-market block share repurchases probability, frequency and timing," Pacific-Basin Finance Journal, Elsevier, vol. 53(C), pages 278-296.
    3. Smith, Deborah Drummond & Pennathur, Anita K. & Marciniak, Marek R., 2017. "Why do CEOs agree to the discipline of dividends?," International Review of Financial Analysis, Elsevier, vol. 52(C), pages 38-48.
    4. Alev Dilek Aydin & Seyma Caliskan Cavdar, 2015. "Corporate Governance and Dividend Policy : An Empirical Analysis From Borsa Istanbul Corporate Governance Index (XKURY)," Accounting and Finance Research, Sciedu Press, vol. 4(3), pages 1-66, August.
    5. Alzahrani, Mohammed & Lasfer, Meziane, 2012. "Investor protection, taxation, and dividends," Journal of Corporate Finance, Elsevier, vol. 18(4), pages 745-762.
    6. Thomas O'Connor, 2012. "Dividend payout, corporate governance, and the enforcement of creditor rights in emerging markets," Economics Department Working Paper Series n227-12.pdf, Department of Economics, National University of Ireland - Maynooth.
    7. Gyimah, Daniel & Gyapong, Ernest, 2021. "Managerial entrenchment and payout policy: A catering effect," International Review of Financial Analysis, Elsevier, vol. 73(C).
    8. Pornsit Jiraporn & Sang Mook Lee, 2018. "Do Co†Opted Directors Influence Dividend Policy?," Financial Management, Financial Management Association International, vol. 47(2), pages 349-381, June.
    9. Anwer, Zaheer & Mohamad, Shamsher & Paltrinieri, Andrea & Hassan, M. Kabir, 2021. "Dividend payout policy of Shariah compliant firms: Evidence from United States," Pacific-Basin Finance Journal, Elsevier, vol. 69(C).
    10. Novotny Josef & Polach Jiri, 2016. "Real Silver And Its Investment And Business Options," International Journal of Entrepreneurial Knowledge, Center for International Scientific Research of VSO and VSPP, vol. 4(1), pages 40-51, June.
    11. Thomas O'Connor, 2013. "Dividend payout and corporate governance in emerging markets: which governance provisions matter?," International Journal of Corporate Governance, Inderscience Enterprises Ltd, vol. 4(2), pages 181-207.
    12. Laeeq Ahmad & Yasir Iftikhar & Sarmad Ejaz & Waqas Baig & Kashif Nadeem & Rabia Shahid, 2019. "Dividend Policy and Share Price volatility: Evidence From Pakistan Stock Exchange of Listed Commercial Banks," Issues in Economics and Business, Macrothink Institute, vol. 5(1), pages 35-44, June.
    13. Muhammad Sadiq Shahid, PhD & Dr.Faid Gul & Muhammad Rizwan & Muhammad Hassan Bucha, PhD, 2016. "Ownership Structure, Board Size, Board Composition And Dividend Policy: New Evidence From Two Emerging Markets," IBT Journal of Business Studies (JBS), Ilma University, Faculty of Management Science, vol. 12(2), pages 25-36.
    14. ATM Adnan & Nisar Ahmed, 2019. "The Transformation Of The Corporate Governance Model: A Literature Review," Copernican Journal of Finance & Accounting, Uniwersytet Mikolaja Kopernika, vol. 8(3), pages 7-47.
    15. Anwar Boumosleh & Brandon Cline, 2015. "Outside Director Stock Options and Dividend Policy," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(3), pages 381-410, June.
    16. Thomas O'Connor, 2012. "Dividend payout and corporate governance along the corporate life-cycle," Economics Department Working Paper Series n228-12.pdf, Department of Economics, National University of Ireland - Maynooth.
    17. Sheikh, Shahbaz, 2022. "CEO power and the likelihood of paying dividends: Effect of profitability and cash flow volatility," Journal of Corporate Finance, Elsevier, vol. 73(C).
    18. P. Krishna Prasanna & Anish S. Menon, 2012. "Corporate governance and stock market liquidity in India," International Journal of Behavioural Accounting and Finance, Inderscience Enterprises Ltd, vol. 3(1/2), pages 24-45.
    19. Szomko Natalia, 2015. "Investor Reaction to Information on Final Dividend Payouts on the Warsaw Stock Exchange – an Event Study Analysis," International Journal of Management and Economics, Warsaw School of Economics, Collegium of World Economy, vol. 45(1), pages 127-146, March.
    20. John, Kose & Knyazeva, Anzhela & Knyazeva, Diana, 2015. "Governance and Payout Precommitment," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 101-117.
    21. Florackis, Chris & Kanas, Angelos & Kostakis, Alexandros, 2015. "Dividend policy, managerial ownership and debt financing: A non-parametric perspective," European Journal of Operational Research, Elsevier, vol. 241(3), pages 783-795.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eme:rafpps:v:8:y:2009:i:1:p:87-116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Emerald Support (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.