The Effect of Institutional Ownership on Payout Policy: Evidence from Index Thresholds
50 Pages Posted: 9 Jul 2012 Last revised: 14 May 2014
Date Written: March 31, 2014
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: Suggested Citation