CEO Overconfidence and Dividend Payout Policy

Liu, Shijie (2022) CEO Overconfidence and Dividend Payout Policy. [Dissertation (University of Nottingham only)]

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The payout policy depends on not only the company's development strategy but also the CEO's personal characteristics, and CEO overconfidence is one of the attributes that are widely discussed. This study investigates the impact of CEO overconfidence on dividend payout policy. We analyze the traditional dividend hypothesis, the irrational behaviors caused by CEO overconfidence, and how these irrational behaviors affect the payout policy.

The study carried out the estimation based on 1238 U.S. and Canadian active and inactive publicly companies from 2010-2019. We use the method Holder67 of Malmendier and Tate (2005) to measure CEO overconfidence and follow the research method of Deshmukh et al. (2013). We first prove that overconfident CEO is 6.5% less likely to initiate dividend payments, which is consistent with the cater hypothesis. Then we find that CEO overconfidence is positively related to the amount of dividend payment. Specifically, overconfident CEOs tend to distribute $62.35 million more dividends than non-overconfidence.

We also analyze life-cycle theories of dividends and find that the growth opportunities have no impact on dividend payout independently, and the impact of CEO overconfidence on divide payout is greater in high-growth firms. Moreover, we differentiate companies into innovative and non-innovative firms based on the amount of R&D investment, and we find that the increase in dividend payments associated with CEO overconfidence is larger in innovative firms.

Item Type: Dissertation (University of Nottingham only)
Depositing User: Liu, Shijie
Date Deposited: 21 Jun 2023 14:37
Last Modified: 21 Jun 2023 14:37

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