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Institutional investors’ horizon and equity-financed payouts

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  • He, Wen
  • Mi, Lin

Abstract

Farre-Mensa, Michaely and Schmalz (2018) document that many firms issue new equity to finance their payouts to shareholders, despite the substantial cost of equity issuance. We find that equity-financed payouts are related to institutional investors’ horizon. Specifically, firms with a larger ownership by short-horizon institutions are more likely to have equity-financed discretionary payouts, and firms with equity-financed discretionary payouts tend to cut down their investments in the following years. Our results suggest that investor short-termism has significant effects on firms’ payout, financing and investment policies.

Suggested Citation

  • He, Wen & Mi, Lin, 2022. "Institutional investors’ horizon and equity-financed payouts," Journal of Banking & Finance, Elsevier, vol. 134(C).
    • Handle: RePEc:eee:jbfina:v:134:y:2022:i:c:s0378426621002752
    DOI: 10.1016/j.jbankfin.2021.106324
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    Cited by:

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    2. Lu, Shuai & Li, Shouwei, 2023. "Is institutional herding efficient? Evidence from an investment efficiency and informational network perspective," Journal of Behavioral and Experimental Finance, Elsevier, vol. 39(C).
    3. Christof Beuselinck & Luc Desrousseaux, 2024. "Hedge fund activism and corporate intangible capital investments," Review of Quantitative Finance and Accounting, Springer, vol. 63(1), pages 37-61, July.
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    5. Liu, Jie & Wu, Chonglin & Zheng, Wanqing & Lin, Gengyan, 2023. "Monitor or manipulator? The effect of institutional ownership on market manipulation," Finance Research Letters, Elsevier, vol. 58(PB).
    6. He, Wen & Zhang, Feida, 2022. "Languages and dividends," The British Accounting Review, Elsevier, vol. 54(6).

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    More about this item

    Keywords

    Payout policy; Financing policy; Corporate investments; Short-termism; Institutional investors;
    All these keywords.

    JEL classification:

    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies

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