Role of Corporate Governance and Lifecycle in Determining Payout Precommitment in an Emerging Economy

NUI Maynooth Department of Economics Finance & Accounting Working Paper N. 297-20

46 Pages Posted: 13 Apr 2020

See all articles by Thomas Flavin

Thomas Flavin

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting

Abhinav Goyal

University College Cork

Thomas O’Connor

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting

Date Written: March 17, 2020

Abstract

We analyze the role of firm-level corporate governance in determining the precommitment payout policy of emerging market firms and investigate if there is a precommitment lifecycle effect. Unlike previous studies for the U.S. firms, we only find evidence of precommitment among relatively well-governed firms, who combine good governance with large dividend payouts to shareholders and large debt-related repayments to creditors. We also document a strong precommitment lifecycle effect. Firms in the growth and mature stages of their lifecycle tend to use both debt and dividends to precommit to investors, with an increasing proportion of dividends in total payout measures. Our results are robust to an array of control variables, alternate payout proxies, firm-level corporate governance and addresses any potential endogeneity concerns in the sample.

Keywords: Precommitment payout, corporate governance, lifecycle effects, emerging market

JEL Classification: G32, G35

Suggested Citation

Flavin, Thomas J and Goyal, Abhinav and O'Connor, Thomas, Role of Corporate Governance and Lifecycle in Determining Payout Precommitment in an Emerging Economy (March 17, 2020). NUI Maynooth Department of Economics Finance & Accounting Working Paper N. 297-20 , Available at SSRN: https://ssrn.com/abstract=3555840 or http://dx.doi.org/10.2139/ssrn.3555840

Thomas J Flavin

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting ( email )

County Kildare
Ireland
+353 1 708 3369 (Phone)
+353 1 708 3934 (Fax)

Abhinav Goyal

University College Cork ( email )

O'Rahilly Building
College Road
Cork
Ireland
+353 (0)21 490 2839 (Phone)

Thomas O'Connor (Contact Author)

National University of Ireland, Maynooth (NUI Maynooth) - Department of Economics, Finance and Accounting ( email )

County Kildare
Ireland

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