Shareholder Investment Horizons and Payout Policy

Abstract

We find that institutions with short and long investment horizons have different effects on corporate payout policy. Firms with higher long (short) term institutional holdings are more (less) likely to pay dividends and tend to have larger (smaller) dividend payouts. Although high long-term institutional holdings also lead to more and larger repurchases, long-term institutions tend to prefer dividends to repurchases. In contrast, short-term institutional investors prefer repurchases to dividends. Overall, the results are consistent with long-term institutional investors playing an important monitoring role and with short-term institutional investors trading on their short-term information.

Keywords: Institutional investors, Investment horizons, Payout policy

JEL Classification: G23, G35, G11