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Two essays in corporate finance

Pan, Carrie H
http://rave.ohiolink.edu/etdc/view?acc_num=osu1186166338

Abstract Details

2007, Doctor of Philosophy, Ohio State University, Business Administration.
This dissertation examines two issues that are related to corporate payout policy. The first essay investigates the impact of financial development on dividend policy across countries, an issue that has largely been overlooked by the literature. The second essay investigates the relation between managerial entrenchment and firms’ propensity to pay dividends in the U.S. Financial development has a positive influence on dividend policy because it improves a firm’s access to external finance and it helps control the agency conflicts between corporate insiders and outside shareholders. Such influence reduces the firm’s incentive to retain profits. Therefore, financial development should encourage higher dividend payouts and earlier dividend initiations. The first dissertation essay, presented in Chapter 2, tests this hypothesis. I find it to be true using a large sample of industrial firms across 44 countries. The results are robust to various measures of financial development. Moreover, I show that this effect is not driven by the difference in legal protection of minority shareholders across countries. In the second essay, presented in Chapter 3, I find that firms with entrenched managers, as measured by strong managerial power resulting from takeover protections, are more likely to pay dividends. Their high propensity to pay persists over time. While these results are surprising in light of the conventional wisdom, they support the view that firms choose a combination of governance provisions and dividend policy to maximize value. A large cash reserve can be used to deter hostile takeovers. Paying dividends reduces cash holdings, leaving the firm more vulnerable to hostile takeovers. In equilibrium, value-maximizing firms with weak investment opportunities protect managers against takeovers to induce them to distribute cash rather than build a warchest of cash against unwanted takeovers.
René Stulz (Advisor)
155 p.
dividend policy; financial development; takeovers; managerial entrenchment

Recommended Citations

Citations

  • Pan, C. H. (2007). Two essays in corporate finance [Doctoral dissertation, Ohio State University]. OhioLINK Electronic Theses and Dissertations Center. http://rave.ohiolink.edu/etdc/view?acc_num=osu1186166338

    APA Style (7th edition)

  • Pan, Carrie. Two essays in corporate finance. 2007. Ohio State University, Doctoral dissertation. OhioLINK Electronic Theses and Dissertations Center, http://rave.ohiolink.edu/etdc/view?acc_num=osu1186166338.

    MLA Style (8th edition)

  • Pan, Carrie. "Two essays in corporate finance." Doctoral dissertation, Ohio State University, 2007. http://rave.ohiolink.edu/etdc/view?acc_num=osu1186166338

    Chicago Manual of Style (17th edition)

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This open access ETD is published by The Ohio State University and OhioLINK.