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CEO Overconfidence and Dividend Policy

55 Pages Posted: 29 Oct 2009 Last revised: 16 Mar 2010

Sanjay Deshmukh

DePaul University - Department of Finance

Anand M. Goel

Navigant Consulting, Inc.

Keith M. Howe

DePaul University - Department of Finance

Date Written: February 18, 2010

Abstract

We develop a model of the effect of CEO overconfidence on dividend policy and empirically examine its central predictions. Consistent with our main prediction, we find that the level of dividend payout is lower in firms managed by overconfident CEOs. We document that this reduction in dividends associated with CEO overconfidence is greater in firms with lower growth opportunities and lower cash flow. We also show that the magnitude of the positive market reaction to a dividend-increase announcement is lower for firms managed by overconfident CEOs. Our overall results are consistent with the predictions of our model.

Keywords: CEO, Overconfidence, Dividends, Payout

JEL Classification: G350, D810

Suggested Citation

Deshmukh, Sanjay and Goel, Anand M. and Howe, Keith M., CEO Overconfidence and Dividend Policy (February 18, 2010). Available at SSRN: https://ssrn.com/abstract=1496404 or http://dx.doi.org/10.2139/ssrn.1496404

Sanjay Deshmukh

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-8472 (Phone)
312-362-6566 (Fax)

Anand Mohan Goel

Navigant Consulting, Inc. ( email )

150 N Riverside Plaza
Chicago, IL 60606
United States

HOME PAGE: http://www.anandgoel.org/

Keith M. Howe (Contact Author)

DePaul University - Department of Finance ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
312-362-5126 (Phone)

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