Abstract

http://ssrn.com/abstract=1343805
 
 

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Managerial Overconfidence and Dividend Policy


Leonardo Cordeiro


London Business School

February 15, 2009


Abstract:     
Managerial overconfidence has been shown to significantly affect corporate investment, financing policy and merger appetite. We investigate whether it also impacts dividend policy. Overconfident managers believe their firms' securities are undervalued, either because they expect cash flows from current projects to be higher or because they foresee better future growth opportunities. As such, they are less inclined to pay anything out since they believe they can earn higher returns by investing in their firms' projects. This effect is amplified by their preference to using internally generated cash to finance these projects, in an attempt to avoid issuing undervalued securities. Using several proxies for managerial overconfidence and controlling for the determinants of dividend policy discussed in the literature, we provide empirical evidence that managerial overconfidence affects the magnitude of dividends and total distributions paid out to shareholders.

Number of Pages in PDF File: 36

Keywords: Behavioral corporate finance, payout policy, dividends, behavioral finance, overconfidence

JEL Classification: D03, G35, H32

working papers series


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Date posted: February 17, 2009  

Suggested Citation

Cordeiro, Leonardo, Managerial Overconfidence and Dividend Policy (February 15, 2009). Available at SSRN: http://ssrn.com/abstract=1343805 or http://dx.doi.org/10.2139/ssrn.1343805

Contact Information

Leonardo Cordeiro (Contact Author)
London Business School ( email )
Sussex Place
Regent's Park
London NW1 4SA
United Kingdom
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