Do Corporate Managers Skimp on Shareholders' Dividends to Protect their Own Retirement Funds?

47 Pages Posted: 8 May 2012 Last revised: 20 Jun 2013

Assaf Eisdorfer

University of Connecticut - Department of Finance

Carmelo Giaccotto

University of Connecticut - Department of Finance

Reilly S. White

University of New Mexico - Anderson School of Management

Date Written: May 8, 2012

Abstract

This study is the first to show that the extent of executive pensions directly affects firm dividend policy. We argue and find that managers with high pension holdings are less likely to adapt a high dividend policy that can risk the managers’ future pension payouts. Using a hand-collected actuarial pension dataset of top executives at the largest US firms, we show that (i) dividend yield and dividend payout ratio are significantly lower when manager compensation relies more heavily on pension payouts; (ii) given a desirable payout policy, managers with large pension plans prefer the form of stock repurchases over cash dividend distributions; and (iii) the negative effect of pension on dividend is significantly weaker when pensions are protected in a prefunding rabbi trust. We show further that this agency behavior reduces firm performance.

Keywords: Inside Debt, Executive Compensation, Capital Structure, Agency Costs, Investment Policy

JEL Classification: J33, M52

Suggested Citation

Eisdorfer, Assaf and Giaccotto, Carmelo and White, Reilly S., Do Corporate Managers Skimp on Shareholders' Dividends to Protect their Own Retirement Funds? (May 8, 2012). Available at SSRN: https://ssrn.com/abstract=2054787 or http://dx.doi.org/10.2139/ssrn.2054787

Assaf Eisdorfer

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States

Carmelo Giaccotto

University of Connecticut - Department of Finance ( email )

School of Business
2100 Hillside Road
Storrs, CT 06269
United States
202-486-4360 (Phone)
202-486-0349 (Fax)

Reilly S. White (Contact Author)

University of New Mexico - Anderson School of Management ( email )

1 University of New Mexico
Albuquerque, NM 87131-1221
United States

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