35 Pages Posted: 20 Mar 2007
Date Written: March 15, 2007
This paper investigates whether product market competition affects managers' decision to distribute cash to shareholders. Using a large sample of manufacturing firms, we find that firms in less competitive industries have significantly lower payout ratios than firms in more competitive markets. Further, we find that this negative relation between industry concentration levels and corporate payouts is much stronger among those firms whose overall characteristics make them (a) more likely to have high agency costs of free cash flows and (b) less likely to be the target of predation. In general, our results are consistent with the notion that the disciplinary forces of competition induce managers to payout excess cash and with the idea that corporate payouts are the "outcome" of external factors.
Keywords: Payout Policy, Dividends, Share Repurchases, Product Market Competition
JEL Classification: G35
Suggested Citation: Suggested Citation
Grullon, Gustavo and Michaely, Roni, Corporate Payout Policy and Product Market Competition (March 15, 2007). AFA 2008 New Orleans Meetings Paper. Available at SSRN: https://ssrn.com/abstract=972221 or http://dx.doi.org/10.2139/ssrn.972221
By Ivo Welch