The Effect of Institutional Ownership on Payout Policy: Evidence from Index Thresholds

50 Pages Posted: 9 Jul 2012 Last revised: 14 May 2014

See all articles by Alan D. Crane

Alan D. Crane

Rice University - Jesse H. Jones Graduate School of Business

Sebastien Michenaud

Kellstadt Graduate School of Business

James Weston

Rice University - Jesse H. Jones Graduate School of Business

Date Written: March 31, 2014

Abstract

We show firms pay more dividends and repurchase more shares when they have higher levels of institutional ownership, even if the institutions are not activist investors. We also find evidence of an effect of institutional ownership on proxy voting, profitability, R&D, and CEO compensation. Our identification strategy relies on an instrument for ownership based on the annual composition of the Russell 1,000 and 2,000 indices. Overall, results support agency models where institutional owners lower the marginal cost of delegated monitoring.

Keywords: Payout, Institutional Investors, Dividends, Share Repurchases, Regression Discontinuity Design

JEL Classification: G35, G32, G30

Suggested Citation

Crane, Alan D. and Michenaud, Sebastien and Weston, James Peter, The Effect of Institutional Ownership on Payout Policy: Evidence from Index Thresholds (March 31, 2014). Available at SSRN: https://ssrn.com/abstract=2102822 or http://dx.doi.org/10.2139/ssrn.2102822

Alan D. Crane (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005-1892
United States

Sebastien Michenaud

Kellstadt Graduate School of Business ( email )

1 East Jackson Blvd.
Chicago, IL 60604
United States
(312)362-5001 (Phone)

HOME PAGE: http://www.sebastienmichenaud.com

James Peter Weston

Rice University - Jesse H. Jones Graduate School of Business ( email )

6100 South Main Street
P.O. Box 1892
Houston, TX 77005
United States
713-348-4480 (Phone)
713-348-6331 (Fax)

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