Controlling Stockholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Times Mirror Company

Posted: 18 Apr 2001

See all articles by Harry DeAngelo

Harry DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Linda DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Abstract

The Times Mirror Company, a NYSE-listed Fortune 500 firm controlled for 100 years by the Chandler family, hired an industry outsider as CEO in 1995 following an extended period of poor operating and stock price performance under non-family management. This change was apparently an unintended consequence of actions taken by old management to fund its capital expansion plans while satisfying the family's desire for dividends. Specifically, in 1994 old management agreed to (1) sell TM's cable business and reinvest most of the $1.3 billion proceeds in new technology, and (2) maintain the Chandlers' dividends while radically cutting those to minority stockholders. While Wall Street reacted favorably to the cable sale, it punished TM's stock when it later learned about management's reinvestment plans. Shortly thereafter TM's board brought in a noted financial disciplinarian, who as CEO substantially increased stockholder value by terminating low return investments and distributing free cash flow. While pressure to pay dividends and monitoring by large block stockholders ultimately improved TM's performance, the path to this outcome was slow and circuitous, so that these disciplinary forces were weaker than theory typically implies.

Keywords: Payout policy, Controlling stockholders, Family control

JEL Classification: G35, G32

Suggested Citation

DeAngelo, Harry and DeAngelo, Linda, Controlling Stockholders and the Disciplinary Role of Corporate Payout Policy: A Study of the Times Mirror Company. Journal of Financial Economics, Vol. 56, No. 2, May 1, 2000. Available at SSRN: https://ssrn.com/abstract=251501

Harry DeAngelo (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-6541 (Phone)
213-740-6650 (Fax)

Linda DeAngelo

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States
213-740-3868 (Phone)
213-740-6650 (Fax)

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