Between Scylla and Charybdis: CEO Political Ideology, Dividends and Downsizing During the Pandemic

Abstract

Using a proprietary dataset, we study whether CEO political ideology affected how S&P 500 firms reacted to the Covid-19 pandemic. We hypothesize that conservative CEOs are more likely to downsize their workforce while meeting dividend expectations. Conversely, other CEOs should be less likely to meet dividend expectations and less likely to downsize. The evidence supports this hypothesis. We also find that conservative CEOs use temporary downsizing to avoid an earnings loss, which in turn enables them meet dividend expectations. Importantly, CEOs used the dividend forecasts for 2020 as their benchmark rather than the 2019 dividends to make their dividend decision.

Keywords: CEO political ideology, dividend policy, downsizing, stakeholder management, Covid-19 pandemic

JEL Classification: G35,G34,M51