Hot-Stove Effects: The Impact of CEO Past Professional Experiences on Dividend Policy
47 Pages Posted: 1 Mar 2020 Last revised: 3 Mar 2020
Date Written: January 30, 2020
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: Suggested Citation