Dividend Policy and Product Market Competition

46 Pages Posted: 20 Mar 2007 Last revised: 9 Mar 2019

See all articles by Gustavo Grullon

Gustavo Grullon

Rice University - Jesse H. Jones Graduate School of Business

Yelena Larkin

York University - Schulich School of Business

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI); Swiss Finance Institute

Date Written: March 7, 2019

Abstract

This paper shows that firms in more competitive industries pay higher dividends than do firms in less competitive markets. We establish a causal link by showing that an exogenous increase in competition due to large tariff reductions leads to higher dividend payout ratios. Further tests, including a shock to managerial entrenchment, indicate that agency considerations are a plausible channel for the negative effect of concentration levels on dividend payouts. Overall, our findings are consistent with two notions: One, the disciplinary forces of competition induce managers to pay out excess cash; and two, dividends are an outcome of external governance factors.

Keywords: Payout Policy, Dividends, Share Repurchases, Product Market Competition

JEL Classification: G35

Suggested Citation

Grullon, Gustavo and Larkin, Yelena and Michaely, Roni, Dividend Policy and Product Market Competition (March 7, 2019). Available at SSRN: https://ssrn.com/abstract=972221 or http://dx.doi.org/10.2139/ssrn.972221

Gustavo Grullon (Contact Author)

Rice University - Jesse H. Jones Graduate School of Business ( email )

P.O. Box 2932
Houston, TX 77252-2932
United States
(713) 348-6138 (Phone)
(713) 348-6331 (Fax)

HOME PAGE: http://www.ruf.rice.edu/~grullon/

Yelena Larkin

York University - Schulich School of Business ( email )

4700 Keele Street
Toronto, Ontario M3J 1P3
Canada

Roni Michaely

University of Geneva - Geneva Finance Research Institute (GFRI) ( email )

40 Boulevard du Pont d'Arve
Geneva 4, 1211
Switzerland

Swiss Finance Institute

c/o University of Geneva
40, Bd du Pont-d'Arve
CH-1211 Geneva 4
Switzerland

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