Dividends and Managerial Overconfidence

33 Pages Posted: 6 Mar 2013 Last revised: 22 Jun 2013

See all articles by Balasingham Balachandran

Balasingham Balachandran

La Trobe University - School of Economics and Finance; Financial Research Network (FIRN)

Suren Basov

University of Melbourne - Department of Economics

Michael Theobald

University of Birmingham - Department of Accounting and Finance

Date Written: June 22, 2013

Abstract

We analyze the direct impacts of managerial overconfidence upon the dividend decision and demonstrate that the dividend levels and speeds of adjustment to target levels can increase when managers exhibit overconfidence. However, we demonstrate that the directional impact upon dividend levels will depend upon the nature of the managerial overconfidence. We consider two components of managerial overconfidence, pride and egotism, and show that differing degrees of investor bias can lead to reversals of this situation with the result that the empirical results will be influenced by the relative impacts of manager and investor related cognitive biases.

Keywords: Dividend, Speed of Adjustment, Overconfidence

JEL Classification: G02, G14, G35

Suggested Citation

Balachandran, Balasingham and Basov, Suren and Theobald, Michael F., Dividends and Managerial Overconfidence (June 22, 2013). Available at SSRN: https://ssrn.com/abstract=2228612 or http://dx.doi.org/10.2139/ssrn.2228612

Balasingham Balachandran (Contact Author)

La Trobe University - School of Economics and Finance ( email )

La Trobe University
Bundoora, Vic, 3086
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Suren Basov

University of Melbourne - Department of Economics ( email )

Australia

Michael F. Theobald

University of Birmingham - Department of Accounting and Finance ( email )

Birmingham B15 2TT
United Kingdom
0121 414 6678 (Fax)

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