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  5. Dividend and Payout Policy
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Dividend and Payout Policy

Paper Session

Tuesday, Jan. 5, 2021 10:00 AM - 12:00 PM (EST)

Hosted By: American Finance Association
  • Chair: Gustavo Grullon, Rice University

Are Corporate Payouts Abnormally High in the 2000s?

Kathleen Kahle
,
University of Arizona
Rene Stulz
,
Ohio State University

Abstract

Adjusting for inflation, the annual amount paid out through dividends and share repurchases by public non-financial firms is three times larger in the 2000s than from 1971 to 1999. We find that an increase in aggregate corporate income explains 38% of the increase in the average of aggregate annual payouts from 1971-1999 to the 2000s, while an increase in the aggregate payout rate explains 62%. Changes in firm characteristics explain 71% of the increase in average payout rate for the population and 49% of the increase in the average payout rate of firms with payouts. The increases cannot be explained by decreases in investment. Models estimated over 1971-1999 underpredict the payout rate of firms with payouts in the 2000s. These models perform better when we forecast non-debt-financed payouts for a sample of larger firms, but not for the sample as a whole. Payouts are more responsive to firm characteristics in the 2000s than before, which is consistent with management having stronger payout incentives.

Soft Activism and Corporate Dividend Policy: Evidence from Institutional Investors Site Visits

Xiaping Cao
,
Sun Yat-Sen University
Hanyang Wang
,
Peking University
Sili Zhou
,
Fudan University

Abstract

Site visits, acting as a form of soft activism, help discipline firm management by increasing cash dividend ex post. The casual link is built by using both Difference-in-Difference and instrumental variable approaches. The effect of site visits works through the channel of threat of exit. Moreover, site visits discipline through active enagement resulting in more participating shareholders and dividend-related proposals in upcoming shareholder meetings. The paper highlights the role of soft activism in a weak institutional environment.

Monetary Easing, Leveraged Payouts and Lack of Investment

Viral V. Acharya
,
New York University
Guillaume Plantin
,
Sciences Po

Abstract

This paper studies a model in which a low monetary policy rate lowers the cost of capital for entrepreneurs, potentially spurring productive investment. Low interest rates, however, also induce entrepreneurs to lever up so as to increase payouts to equity. Whereas such leveraged payouts privately benefit entrepreneurs, they come at the social cost of reducing their incentives thereby lowering productivity and discouraging investment. If leverage is unregulated (for example, due to the presence of a shadow-banking system), then the optimal monetary policy seeks to contain such socially costly leveraged payouts by stimulating investment in response
to adverse shocks only up to a level below the first-best. The optimal monetary policy may even consist of ``leaning against the wind," i.e., not stimulating the economy at all, in order to fully contain leveraged payouts and maintain productive efficiency. We provide preliminary evidence consistent with the model's implications.

Higher Dividend Taxes, No Problem! Evidence from Taxing Entrepreneurs in France

Charles Boissel
,
HEC Paris
Adrien Matray
,
Princeton University

Abstract

This paper investigates how the large increase in dividend tax rate in France in 2013 affected firms' performance and corporate investment. Using administrative data covering the universe of firms for the period 2008--2016 and a quasi-experimental setting, we find that firms swiftly cut dividend payments. Firms use this tax-induced increase in liquidity to invest more, particularly so when facing high demand. For every additional euro of undistributed dividends, firms increase their investment by 0.2 euro, leading to higher sales growth. Heterogeneity analysis fails to find any group of firms having to cut their investment, thereby clearly rejecting models in which dividend tax reforms affect the cost of capital. Overall, our results suggest that entrepreneurs are credit constraints in equilibrium, despite paying dividends and do not hold enough liquidity to seize investment opportunities when they arise randomly in the economy.
Discussant(s)
Joan Farre-Mensa
,
University of Illinois-Chicago
Alan Crane
,
Rice University
Tano Santos
,
Columbia University
Danny Yagan
,
University of California-Berkeley
JEL Classifications
  • G3 - Corporate Finance and Governance