Hot-Stove Effects: The Impact of CEO Past Corporate Experiences on Dividend Policy

Abstract

The personal traits of CEOs have been found to influence corporate policy decisions. We examine the impact of CEO past corporate distress experiences on payout policy. CEOs who have experienced a distress event in their career, while working in a non-CEO position at a different firm, subsequently alter corporate payout policy once in the CEO position. They are less likely to pay dividends and repurchase shares, pay out lower levels of dividends, and are less likely to increase dividends. They further exhibit preference toward repurchases. Overall, we report that experience-driven conservatism affects payout policy, a novel finding in the literature.

Keywords: CEO experience, dividend policy, payout policy, behavioral finance

JEL Classification: G30, G35, G40