Do Corporate General Counsels Mitigate Agency Problems? Evidence from Dividend Policy Decisions

Abstract

We find that firms with a corporate general counsel in top management (TMC) are less likely to pay dividends, and for such firms that do pay dividends, the dividend payouts are lower. Our results hold addressing both endogeneity concerns and selection biases. We also find that the presence of a TMC will reduce the potential for overinvestment and that firms with TMCs invest less in CAPEX than firms without TMCs when there is a tendency to overinvest. Further, we find that firms with TMCs have a higher propensity to pay a dividend or have a higher payout ratio than firms without TMCs where there is the highest likelihood of agency costs deriving from overinvestment problems. Overall, our findings support the important role of the presence of a TMC as an effective corporate governance mechanism as evidenced by dividend decisions.

Keywords: Corporate General Counsel; Decision to pay Dividend; Dividend Payout; Agency Costs; Corporate Governance; Repurchases

JEL Classification: G14, G32, K00