Governance and Payout Precommitment

53 Pages Posted: 3 Mar 2008 Last revised: 18 Aug 2015

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Anzhela Knyazeva

Independent; New York University (NYU) - Leonard N. Stern School of Business

Diana Knyazeva

Independent

Date Written: May 15, 2015

Abstract

We examine how firms structure payout and debt commitments to address governance weaknesses. Firms with severe agency conflicts precommit through a combination of dividends and debt or through dividends rather than debt alone. Such firms also shift their shareholder payouts towards regular quarterly dividends – a stronger commitment than special dividends or repurchases. Although dividend commitments are implicit, event study evidence supports their credibility and value-relevance for firms with weak governance. Despite harsher penalties, debt alone cannot replace shareholder payouts as a means of addressing managerial agency conflicts.

Keywords: precommitment, payout, debt–dividend tradeoff, corporate governance

JEL Classification: G30, G35, G32, G34

Suggested Citation

John, Kose and Knyazeva, Anzhela and Knyazeva, Diana, Governance and Payout Precommitment (May 15, 2015). Journal of Corporate Finance, Vol. 33, pp. 101-117. Available at SSRN: https://ssrn.com/abstract=1101062 or http://dx.doi.org/10.2139/ssrn.1101062

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Anzhela Knyazeva (Contact Author)

Independent ( email )

No Address Available

New York University (NYU) - Leonard N. Stern School of Business ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

Diana Knyazeva

Independent ( email )

No Address Available

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