The Effect of Managerial Ability on Dividend Policy: How Do Talented Managers View Dividend Payouts?

14 Pages Posted: 28 Oct 2015 Last revised: 3 Sep 2016

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

veeranuch leelalai

National Institute of Development Administration (NIDA)

Shenghui Tong

Central University of Finance and Economics (CUFE)

Date Written: October 27, 2015

Abstract

We contribute to the literature on dividend policy by relaxing Miller and Modigliani’s (1961) perfect capital market assumptions and incorporating a factor that has not been investigated before, i.e. variation in managerial ability. Based on more than 24,000 observations across over 20 years (1989-2011), our results show that firms with more talented executives are more likely to pay dividends and, among firms that pay dividends, pay significantly larger dividends. A rise in managerial ability by one standard deviation raises the propensity to pay dividends by 27%, and, for firms that pay dividends, increases dividend payouts by 29%. Our results are consistent with the notion that talented managers, confident in their ability to keep the firm profitable, are more willing to pay larger dividends because they are less concerned about having to reduce dividends in the future. Further analysis shows that our results are not likely vulnerable to endogeneity.

Keywords: dividends, dividend policy, dividend payouts, managerial ability, managerial talent

JEL Classification: G34, G35

Suggested Citation

Jiraporn, Pornsit and leelalai, veeranuch and Tong, Shenghui, The Effect of Managerial Ability on Dividend Policy: How Do Talented Managers View Dividend Payouts? (October 27, 2015). Available at SSRN: https://ssrn.com/abstract=2681366 or http://dx.doi.org/10.2139/ssrn.2681366

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Veeranuch Leelalai

National Institute of Development Administration (NIDA) ( email )

118 Seri Thai Road
Bangkok, 10240
Thailand

Shenghui Tong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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