Does Geography Matter? Firm Location and Corporate Payout Policy

Abstract

We investigate the impact of geography on agency costs and firm dividend policies. We argue that remote firm location increases the cost of shareholder oversight of managerial investment decisions. We hypothesize that remotely located firms facing free cash flow problems precommit to higher dividends to mitigate agency conflicts. We find that remotely located firms pay higher dividends. As expected, the effect of geography on dividends is most pronounced for firms with more severe free cash flow problems. Further, remotely located firms rely more on regular dividends instead of special dividends or share repurchases and decrease dividends less often.

Keywords: geography, firm location, proximity to shareholders, dividends, payout policy

JEL Classification: G30, G31, G35, G39