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How do powerful CEOs view dividends and stock repurchases? Evidence from the CEO pay slice (CPS)

Pandej Chintrakarn, Pattanaporn Chatjuthamard, Shenghui Tong and Pornsit Jiraporn

International Review of Economics & Finance, 2018, vol. 58, issue C, 49-64

Abstract: Agency theory suggests that CEOs view dividends unfavorably because dividend payouts deprive them of the free cash flow they could otherwise exploit. Using Bebchuk, Cremers, and Peyer’s (2011) CEO pay slice (CPS) to measure CEO power, we find that an increase in CEO power by one standard deviation decreases the probability of paying dividends by 17.48%. For dividend-paying firms, a rise in CEO power by one standard deviation reduces the size of dividend payouts by 5.91%. Share repurchases, however, are not influenced by CEO power, although they too take away the free cash flow from the CEO.

Keywords: Dividends; Dividend policy; CEO pay slice; CEO power; Repurchases; Buybacks; Agency theory (search for similar items in EconPapers)
JEL-codes: G30 G34 (search for similar items in EconPapers)
Date: 2018
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