Governance and Payout Precommitment

John, Kose; Knyazeva, Anzhela; Knyazeva, Diana

doi:10.1016/j.jcorpfin.2015.05.004

Cited by 80 publications

(55 citation statements)

References 66 publications

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“…In the model, both will lead to a dividend rather than a repurchase. Consistent with this prediction, in an empirical study, John, Knyazeva, and Knyazeva () find that dividends are preferred over repurchases when agency problems are severe. While the literature suggests that in general agency considerations play a significant role in payout policy (e.g., Grullon & Michaely, ), we are not aware of any study that investigates how the choice of payout method depends on governance quality.…”

Section: Empirical Evidence and Further Researchmentioning

confidence: 82%

Payout policy, financial flexibility, and agency costs of free cash flow

Oded

2019

Business Fin & Account

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This paper explains how firms choose between dividends and open‐market repurchase programs, the prevailing method that firms use to disburse cash today. While earlier theories about payout policy are motivated by signaling, the motivation for payout in this paper is to prevent the waste of free cash by self‐interested insiders. In the model, dividends prevent free cash waste by forcing cash out, but result in underinvestment if the cash paid out is later needed for operations. Open‐market programs stimulate payout by providing personal gains to informed insiders that are associated with the firm's repurchase trade. Yet, they also avoid the underinvestment problem by leaving insiders the option to cancel the payout. Because their execution is optional, however, open‐market programs only partially prevent the waste of free cash. The model provides testable predictions that are generally consistent with the empirical evidence.

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Section: Empirical Evidence and Further Researchmentioning

confidence: 82%

Payout policy, financial flexibility, and agency costs of free cash flow

Oded

2019

Business Fin & Account

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“…Second, studies supporting a positive relation use institutional ownership as a governance measure (e.g., Short, Zhang, and Keasey 2002;Chang, Kang, and Li 2016) or state antitakeover laws and the difference-in-differences approach (Francis, Ifekhar, and Kose 2011). Third, studies supporting a negative relation use institutional ownership (e.g., Amihud and Li 2006;Grinstein and Palvia 2010;Dutta et al 2015), the GIM index developed by Gompers, Ishii, and Metrick (2003) (e.g., Jiraporn and Ning 2006;John, Knyazeva, and Knyazeva 2015), CEO stock ownership, and executive stock option (Hu and Kumar 2004) or conservative accounting (Louis and Urcan 2015). One possible explanation for these findings is that external corporate governance in the United States is strong enough that investors are not concerned with the private benefits managers may receive from having excess cash and, as a result, do not demand large dividend payments.…”

Section: Relevant Literature and Hypothesis Developmentmentioning

confidence: 99%

“…This assumption is supported by the literature. John, Knyazeva, and Knyazeva (2015) report empirical evidence to support that causality likely goes from governance to dividend payouts. Ciceksever, Kale, and Ryan (2006) report that managers take the governance structure as predetermined.…”

Section: Possible Endogeneity Biasmentioning

confidence: 99%

“…The instrument must be correlated with corporate governance but not correlated with dividends, except through other independent variables. We follow John, Knyazeva, and Knyazeva (2015), John and Kadyrzhanova (2008), and Jiraporn, Kim, and Kim (2011) to employ the countryindustry-median ISS41 index as our instrument. The country-industry median is correlated with corporate governance through peer effects, that is, as firms compare themselves to the median.…”

Section: Possible Endogeneity Biasmentioning

confidence: 99%

See 1 more Smart Citation

Corporate Governance and Dividend Payout Policy: Beyond Country‐level Governance

Chang

Dutta

Saadi

et al. 2018

J of Financial Research

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We address the mixed empirical findings on how corporate governance affects dividend payout policy by analyzing a large sample of firms from 30 countries. Our results indicate that firms with better firm‐level governance pay more dividends, even after controlling for country‐level governance. However, this relation is pronounced only in countries with low shareholder rights. In addition, we find that when the shareholder rights index is high, firm‐level governance is unrelated to dividend payout in the full sample period. Finally, we show that in high‐shareholder‐rights countries, firm‐level governance changes its role from before to after the 2008–2009 financial crisis.

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“…John et al (2015) places cash dividend payments at the top of a payout precommitment hierarchy, ahead of contractual debt obligations and other forms of cash distribution to stakeholders.…”

mentioning

confidence: 99%

Industrial Firms and Systemic Risk

et al. 2020

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We investigate the systemic importance of U.S. industrial firms and analyse the firm-specific characteristics that identify systemically important industrials. We compute two firm-specific measures of systemic risk for 367 non-financial corporations and confirm that industrial firms are both vulnerable to systemic shocks and contribute to system-wide risk. Systemic risk measures exhibit substantial variation across firms and over time. Debt and trade credit are related to both dimensions of systemic risk, while a range of other firm characteristics are associated with systemic risk in at least one direction. The differences between the dimensions of risk and their associated characteristics underline the importance of analysing both measures of risk. Finally, we report some striking differences vis-à-vis the extant literature on banks and non-bank financials.

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Governance and Payout Precommitment

Cited by 80 publications

References 66 publications

Payout policy, financial flexibility, and agency costs of free cash flow

Payout policy, financial flexibility, and agency costs of free cash flow

Corporate Governance and Dividend Payout Policy: Beyond Country‐level Governance

Industrial Firms and Systemic Risk

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