TY - JOUR
T1 - The effect of managerial ability on dividend policy
T2 - how do talented managers view dividend payouts?
AU - Jiraporn, Pornsit
AU - Leelalai, Veeranuch
AU - Tong, Shenghui
N1 - Publisher Copyright:
© 2015 Taylor & Francis.
PY - 2016/8/12
Y1 - 2016/8/12
N2 - We contribute to the literature on dividend policy by relaxing Miller and Modigliani’s (1961) perfect capital market assumptions and incorporating a factor that has not been investigated before, that is, variation in managerial ability. Based on more than 24 000 observations across over 20 years (1989–2011), our results show that firms with more talented executives are more likely to pay dividends and, among firms that pay dividends, pay significantly larger dividends. A rise in managerial ability by one SD raises the propensity to pay dividends by 27% and, for firms that pay dividends, increases dividend payouts by 29%. Our results are consistent with the notion that talented managers, confident in their ability to keep the firm profitable, are more willing to pay larger dividends because they are less concerned about having to reduce dividends in the future. Further analysis shows that our results are not likely vulnerable to endogeneity.
AB - We contribute to the literature on dividend policy by relaxing Miller and Modigliani’s (1961) perfect capital market assumptions and incorporating a factor that has not been investigated before, that is, variation in managerial ability. Based on more than 24 000 observations across over 20 years (1989–2011), our results show that firms with more talented executives are more likely to pay dividends and, among firms that pay dividends, pay significantly larger dividends. A rise in managerial ability by one SD raises the propensity to pay dividends by 27% and, for firms that pay dividends, increases dividend payouts by 29%. Our results are consistent with the notion that talented managers, confident in their ability to keep the firm profitable, are more willing to pay larger dividends because they are less concerned about having to reduce dividends in the future. Further analysis shows that our results are not likely vulnerable to endogeneity.
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U2 - 10.1080/13504851.2015.1114572
DO - 10.1080/13504851.2015.1114572
M3 - Article
AN - SCOPUS:84948159157
SN - 1350-4851
VL - 23
SP - 857
EP - 862
JO - Applied Economics Letters
JF - Applied Economics Letters
IS - 12
ER -