55 Pages Posted: 29 Oct 2009 Last revised: 16 Mar 2010
Date Written: February 18, 2010
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: 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