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

Author

Listed:
  • Jie Chen

    (Cardiff Business School, Cardiff University)

  • Wei Song

    (School of Management, Swansea University)

  • Marc Goergen

    (Cardiff Business School, Cardiff University)

Abstract

We examine how firms’ dividend policy affects the initial compensation of their new CEOs. We focus on new CEOs to isolate the effect of dividends on compensation and to provide new insights into an aspect largely neglected in compensation research. We show that the dividend payout is positively related to new CEO compensation and that this positive relation remains after addressing potential endogeneity concerns. 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

  • Jie Chen & Wei Song & Marc Goergen, 2018. "Passing the dividend baton: The impact of dividend policy on new CEOs' initial compensation," Working Papers 2018-18, Swansea University, School of Management.
    • Handle: RePEc:swn:wpaper:2018-18
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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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