Does firm payout policy affect shareholders’ dissatisfaction with directors?
Tóm tắt
In this study we investigate the information content of firm payout policy to shareholders. We focus on the association between a firm’s payout policy and shareholders’ satisfaction with board directors, as expressed by the percentage of negative or withheld votes for directors during annual elections (shareholders’ dissent voting). We fill a gap in the literature by using shareholders’ voting results in the election of board members at annual meeting as a setting to examine shareholder perception of firms’ payout policies. We find that higher share repurchase and/or higher dividend payout are associated with lower shareholders’ dissenting votes. We also find that such relationship is conditional on the level of free cash flow, firm future performance, the degree of management entrenchment, and the type of institutional investors. Our study contributes to the payout literature by providing empirical evidence that shows the outcome of shareholders’ votes in director elections may be influenced by the board of directors’ payout decisions.
Tài liệu tham khảo
Adams R, Ferreira D (2009) Women in the boardroom and their impact on governance and performance. J Financ Econ 94(2):291–309
Adams RB, Hermalin BE, Weisbach MS (2010) The role of boards of directors in corporate governance: a conceptual framework and survey. J Econ Lit 48(1):58–107
Adjaoud F, Ben-Amar W (2010) Corporate governance and dividend policy: shareholders’ protection or expropriation? J Bus Finance Account 37(5–6):648–667
Alli KL, Khan AQ, Ramirez GG (1993) Determinants of corporate dividend policy: a factorial analysis. Financ Rev 28(4):523–547
Ashcraft AB (2008) Does the market discipline banks? New evidence from regulatory capital mix. J Financ Intermed 17(4):543–561
Bajaj M, Vijh AM (1990) Dividend clienteles and the information content of dividend changes. J Financ Econ 26(2):193–219
Baker HK, Powell GE, Veit ET (2003) Why companies use open-market repurchases: a managerial perspective. Q Rev Econ Finance 43:483–504
Baker M, Mendel B, Wurgler J (2015) Dividends as reference points: a behavioral signaling approach. Rev Financ Stud 29(3):697–738
Baranchuk N, Kieschnick R, Moussawi R (2014) Motivating innovation in newly public firms. J Financ Econ 111(3):578–588
Bebchuk L, Cohen A, Ferrell A (2009) What matters in corporate governance? Rev Financ Econ 22:783–827
Benartzi S, Michaely R, Thaler R (1997) Do changes in dividends signal the future or the past? J Finance 52(3):1007–1034
Bernhardt D, Douglas A, Robertson F (2005) Testing dividend signaling models. J Empir Finance 12(1):77–98
Bernheim BD, Wantz A (1995) A tax-based test of the dividend signaling hypothesis. Am Econ Rev 85(3):532–551
Bethel J, Gillan SL (2002) The impact of the institutional and regulatory environment on shareholder voting. Financ Manag 31(4):29–54
Bhattacharya S (1979) Imperfect information, dividend policy, and “the bird in the hand” fallacy. Bell J Econ 10(1):259–270
Blouin JL, Ready JS, Shackelford DA (2011) Dividends, share repurchases, and tax clienteles: evidence from the 2003 reductions in shareholder taxes. Account Rev 86(3):887–914
Brav A, Graham JR, Harvey CR, Michaely R (2005) Payout policy in the 21st century. J Financ Econ 77(3):483–527
Brockman P, Chung DY (2001) Managerial timing and corporate liquidity: evidence from actual share repurchases. J Financ Econ 61(3):417–448
Brown LD, Caylor ML (2006) Corporate governance and firm valuation. J Account Public Policy 25(4):409–434
Bushee BJ (2001) Do institutional investors prefer near-term earnings over long-run value? Contemp Account Res 18(2):207–246
Byoun S, Xu Z (2013) Why do some firms go debt free? Asia-Pac J Financ Stud 42(1):1–38
Cai J, Garner JL, Walkling RA (2009) Electing directors. J Finance 64(5):2389–2421
Cai Y, Dhaliwal DS, Kim Y, Pan C (2014) Board interlocks and the diffusion of disclosure policy. Rev Account Stud 19(3):1086–1119
Chay JB, Suh J (2009) Payout policy and cash-flow uncertainty. J Financ Econ 93(1):88–107
Chen K, Guay W (2020) Busy directors and shareholder satisfaction. J Financ Quant Anal 55(7):2181–2210
Chen G, Firth M, Gao N (2002) The information content of concurrently announced earnings, cash dividends, and stock dividends: an investigation of the Chinese stock market. J Int Financ Manag Account 13(2):101–124
Comment R, Jarrell GA (1991) The relative signalling power of Dutch-auction and fixed-price self-tender offers and open-market share repurchases. J Finance 46(4):1243–1271
Conroy RM, Eades KM, Harris RS (2000) A test of the relative pricing effects of dividends and earnings: evidence from simultaneous announcements in Japan. J Finance 55(3):1199–1227
Dann LY (1981) Common stock repurchases. J Financ Econ 9(2):113–138
DeAngelo H, DeAngelo L, Stulz RM (2006) Dividend policy and the earned/contributed capital mix: a test of the life-cycle theory. J Financ Econ 81(2):227–254
DeAngelo H, DeAngelo L, Skinner D (2008) Corporate payout policy. Found Trends Finance 3:95–287
DeFond ML, Hann RN, Hu X (2005) Does the market value financial expertise on audit committees of boards of directors? J Account Res 43(2):153–193
DeFond ML, Lim CY, Zang Y (2016) Client conservatism and auditor-client contracting. Account Rev 91(1):69–98
Del Guercio D, Seery L, Woidtke T (2008) Do boards pay attention when institutional investor activists “just vote no? J Financ Econ 90(1):84–103
Denis DJ, Osobov I (2008) Why do firms pay dividends? International evidence on the determinants of dividend policy. J Financ Econ 89(1):62–82
Dittmar AK (2000) Why do firms repurchase stock? J Bus 73(3):331–355
Dittmar A, Mahrt-Smith J (2007) Corporate governance and the value of cash holdings. J Financ Econ 83(3):599–634
Dyl EA, Weigand RA (1998) The information content of dividend initiations: additional evidence. Financ Manage 27(3):27–35
Easterbrook FH (1984) Two agency-cost explanations of dividends. Am Econ Rev 74:650–659
Ertimur Y, Ferri F, Oesch D (2018) Understanding uncontested director elections. Manag Sci 64(7):3400–3420
Fama E, French K (2001) Disappearing dividends: changing firm characteristics or lower propensity to pay? J Financ Econ 60(1):3–43
Fama E, Jensen MC (1983) Separation of ownership and control. J Law Econ 26(2):301–325
Farinha J (2003) Dividend policy, corporate governance and the managerial entrenchment hypothesis: an empirical analysis. J Bus Finance Account 30(9–10):1173–1209
Farre-Mensa J, Michaely R, Schmalz M (2014) Payout policy. Annu Rev Financ Econ 6(1):75–134
Finkelstein S, D’Aveni RA (1994) CEO duality as a double-edged sword: how boards of directors balance entrenchment avoidance and unity of command. Acad Manag J 37(5):1079–1108
Fischer P, Gramlich J, Miller B, White H (2009) Investor perceptions of board performance: evidence from uncontested director elections. J Account Econ 48:172–189
Floyd E, Li N, Skinner DJ (2015) Payout policy through the financial crisis: the growth of repurchases and the resilience of dividends. J Financ Econ 118(2):299–316
Francis BB, Hasan I, John K, Song L (2011) Corporate governance and dividend payout policy: a test using antitakeover legislation. Financ Manag 40(1):83–112
GMI Ratings (2012) The election of corporate directors: what happens when shareowners withhold a majority of votes from director nominees?. http://irrcinstitute.org/pdf/Final%20Election%20of%20Directors%20GMI%20Aug%202012.pdf
Graham JR, Harvey C (2001) The theory and practice of corporate finance: evidence from the field. J Financ Econ 60:187–243
Grinstein Y, Michaely R (2005) Institutional holdings and payout policy. J Finance 60(3):1389–1426
Grullon G, Michaely R (2002) Dividends, share repurchases, and the substitution hypothesis. J Finance 57(4):1649–1684
Grullon G, Michaely R (2004) The information content of share repurchase programs. J Finance 59(2):651–680
Gunasekarage A, Power DM (2002) The post-announcement performance of dividend-changing companies: the dividend-signaling hypothesis revisited. Account Finance 42(2):131–151
Hancock GD, Mougoué M (1991) The impact of financial factors on proxy contest outcomes. J Bus Finance Account 18(4):541–555
Harford J, Mansi SA, Maxwell WF (2008) Corporate governance and firm cash holdings in the US. J Financ Econ 87(3):535–555
Harris O, Glegg C (2009) Governance quality and privately negotiated stock repurchases: evidence of agency conflict. J Bank Finance 33(2):317–325
Healy PM, Palepu KG (1988) Earnings information conveyed by dividend initiations and omissions. J Financ Econ 21(2):149–175
Heckman J (1979) The sample selection bias as a specification error. Econometrica 47(1):153–162
Hermalin BE, Weisbach MS (1988) The determinants of board composition. Rand J Econ 19(4):589–606
Holder ME, Langrehr FW, Hexter JL (1998) Dividend policy determinants: an investigation of the influences of stakeholder theory. Financ Manag 27(3):73–82
Hu A, Kumar P (2004) Managerial entrenchment and payout policy. J Financ Quant Anal 39(4):759–790
Ikenberry D, Lakonishok J, Vermaelen T (1995) Market underreaction to open market share repurchases. J Financ Econ 39(2–3):181–208
Ikenberry D, Lakonishok J, Vermaelen T (2000) Stock repurchases in Canada: performance and strategic trading. J Finance 55(5):2373–2397
Jagannathan M, Stephens C (2003) Motives for multiple open-market repurchase programs. Financ Manag 32(2):71–91
Jagannathan M, Stephens C, Weisbach M (2000) Financial flexibility and the choice between dividends and stock repurchases. J Financ Econ 57(3):355–384
Jensen MC (1986) Agency costs of free cash flow, corporate finance, and takeovers. Am Econ Rev 76(2):323–329
Jensen MC, Meckling WH (1976) Theory of the firm: managerial behavior, agency costs and ownership structure. J Financ Econ 3(4):305–360
Kao C, Wu C (1994) Tests of dividend signaling using the Marsh-Merton Model: a generalized friction approach. J Bus 67:45–68
Kim K, Mauldin E, Patro S (2014) Outside directors and board advising and monitoring performance. J Account Econ 57(2):110–131
Kimbro MB, Xu D (2016) Shareholders have a say in executive compensation: evidence from say-on-pay in the United States. J Account Public Policy 35(1):19–42
Lang LHP, Litzenberger RH (1989) Dividend announcements: cash flow signaling vs. free cash flow hypothesis? J Financ Econ 24(1):181–191
Leary M, Roberts M (2014) Do peer firms affect corporate financial policy? J Finance 69(1):139–178
Lee WJ (2011) Managerial entrenchment and the value of dividends. Rev Quant Finance Account 36(2):297–322
Lee B, Rui OM (2007) Time-series behavior of share repurchases and dividends. J Financ Quant Anal 42(1):119–142
Mallette P, Fowler KL (1992) Effects of board composition and stock ownership on the adoption of “poison pills”. Acad Manag J 35(5):1010–1035
Marshall R, Seretis P, Grunfeld A (2018) Taking stock. Share buybacks and shareholder value. MSCI Thematic Research. https://www.msci.com/documents/10199/ba01b4c4-683c-74ca-339e-f422df5d879e
Mikkelson WH, Partch MM (2003) Do persistent large cash reserves hinder performance? J Financ Quant Anal 38(2):275–294
Miller MH, Modigliani F (1961) Dividend Policy, growth, and the valuation of shares. J Bus 34(4):411–433
Miller MH, Rock K (1985) Dividend policy under asymmetric information. J Finance 40(4):1031–1051
Mitton T (2004) Corporate governance and dividend policy in emerging markets. Emerg Mark Rev 5(4):409–426
Moin A, Guney Y, El Kalak I (2020) The effects of ownership structure, sub-optimal cash holdings and investment inefficiency on dividend policy: evidence from Indonesia. Rev Quant Finance Account. https://doi.org/10.1007/s11156-019-00862-z
Nissim D, Ziv A (2001) Dividend changes and future profitability. J Finance 56(6):2111–2133
Ofer AR, Thakor AV (1987) A theory of stock price responses to alternative corporate cash disbursement methods: stock repurchases and dividends. J Finance 42(2):365–394
Opler T, Titman S (1993) The determinants of leveraged buyout activity: free cash flow vs. financial distress costs. J Finance 48(5):1985–1999
Opler T, Pinkowitz L, Stulz R, Williamson R (1999) The determinants and implications of corporate cash holdings. J Financ Econ 52(1):3–46
Parrino R, Sias RW, Starks LT (2003) Voting with their feet: institutional ownership changes around forced CEO turnover. J Financ Econ 68(1):3–46
Pettit RR (1972) Dividend announcements, security performance, and capital market efficiency. J Finance 27(5):993–1007
Stephens CP, Weisbach MS (1998) Actual share reacquisitions in open-market repurchase programs. J Finance 53(1):313–333
Stulz RM (1988) Managerial control of voting rights: financing policies and the market for corporate control. J Financ Econ 20:25–54
Stulz RM (1990) Managerial discretion and optimal financing policies. J Financ Econ 26(1):3–27
Thomas RS, Tricker PC (2017) Shareholder voting in proxy contests for corporate control, uncontested director elections and management proposals: a review of the empirical literature. Okla Law Rev 70(1):9
Vafeas N (2003) Length of board tenure and outside director independence. J Bus Finance Account 30(7–8):1043–1064
Vance SC (1983) Corporate leadership: boards, directors, and strategy. McGraw-Hill, New York
Vermaelen T (1981) Common stock repurchases and market signaling: an empirical study. J Financ Econ 9(2):139–183
Von Eije H, Megginson WL (2008) Dividends and share repurchases in the European Union. J Financ Econ 89(2):347–374
Whetten LC (1959) Recent proxy contests: a study in management stockholder relations. Georgia State College of Business
Wommack WW (1979) The board’s most important function. Harvard Business Review. https://hbr.org/1979/09/the-boards-most-important-function
Woolridge JR (1982) The information content of dividend changes. J Financ Res 5(3):237–247
Ye Z, Hermanson DR, Krishnan J (2013) Shareholder voting in director elections and initial SOX Section 404 reports. J Account Audit Finance 28(2):103–127
Yermack D (1996) Higher market valuation of companies with a small board of directors. J Financ Econ 40(2):185–211