Hot-Stove Effects: The Impact of CEO Past Professional Experiences on Dividend Policy

47 Pages Posted: 1 Mar 2020 Last revised: 3 Mar 2020

See all articles by Matthew Faulkner

Matthew Faulkner

San Jose State University

Luis García-Feijóo

Florida Atlantic University - Department of Finance

Date Written: January 30, 2020

Abstract

The personal traits of chief executive officers (CEOs) have been found to influence corporate policy decisions. We examine the impact of past professional distress experiences on payout policy. We hypothesize that CEOs experiencing a distress event in their past career, before becoming CEO, alter their implementation of corporate payout policy. We find that CEOs having experienced prior professional career distress are less likely to pay dividends and repurchase shares. These CEOs pay out lower levels of dividends, and when they pay, they smooth dividends more. Additionally, when CEOs with past professional career distress do have a payout policy greater than zero dollars, they exhibit a preference toward the use of repurchases, adding to the literature of substitution and differences between the two forms of payout. Overall, we report that experience-driven conservatism alters payout policy, a novel finding in the literature.

Keywords: CEO experience, dividend policy, payout policy, behavioral finance

JEL Classification: G30, G35, G40

Suggested Citation

Faulkner, Matthew and Garcia-Feijoo, Luis, Hot-Stove Effects: The Impact of CEO Past Professional Experiences on Dividend Policy (January 30, 2020). Available at SSRN: https://ssrn.com/abstract=3529701 or http://dx.doi.org/10.2139/ssrn.3529701

Matthew Faulkner (Contact Author)

San Jose State University ( email )

United States

Luis Garcia-Feijoo

Florida Atlantic University - Department of Finance ( email )

777 Glades Rd
Boca Raton, FL 33431
United States
954-236-1239 (Phone)

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