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The effect of managerial ability on dividend policy: how do talented managers view dividend payouts?

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  • Pornsit Jiraporn
  • Veeranuch Leelalai
  • Shenghui Tong

Abstract

We contribute to the literature on dividend policy by relaxing Miller and Modigliani’s (1961) perfect capital market assumptions and incorporating a factor that has not been investigated before, that is, variation in managerial ability. Based on more than 24 000 observations across over 20 years (1989–2011), our results show that firms with more talented executives are more likely to pay dividends and, among firms that pay dividends, pay significantly larger dividends. A rise in managerial ability by one SD raises the propensity to pay dividends by 27% and, for firms that pay dividends, increases dividend payouts by 29%. Our results are consistent with the notion that talented managers, confident in their ability to keep the firm profitable, are more willing to pay larger dividends because they are less concerned about having to reduce dividends in the future. Further analysis shows that our results are not likely vulnerable to endogeneity.

Suggested Citation

  • Pornsit Jiraporn & Veeranuch Leelalai & Shenghui Tong, 2016. "The effect of managerial ability on dividend policy: how do talented managers view dividend payouts?," Applied Economics Letters, Taylor & Francis Journals, vol. 23(12), pages 857-862, August.
    • Handle: RePEc:taf:apeclt:v:23:y:2016:i:12:p:857-862
    DOI: 10.1080/13504851.2015.1114572
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    Cited by:

    1. Lin, Zhilu & Patel, Pankaj & Oghazi, Pejvak, 2021. "The value of managerial ability and general ability for inventor CEOs," Journal of Business Research, Elsevier, vol. 135(C), pages 78-98.
    2. Ayed, Sabrine & Ben-Amar, Walid & Arouri, Mohamed, 2024. "Climate policy uncertainty and corporate dividends," Finance Research Letters, Elsevier, vol. 60(C).
    3. Isabel‐María García‐Sánchez & Jennifer Martínez‐Ferrero, 2019. "Chief executive officer ability, corporate social responsibility, and financial performance: The moderating role of the environment," Business Strategy and the Environment, Wiley Blackwell, vol. 28(4), pages 542-555, May.
    4. Pallab Kumar Biswas & Dinithi Ranasinghe & Eric K. M. Tan, 2023. "Impact of product market competition on real activity manipulation: Moderating role of managerial ability," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 63(1), pages 247-275, March.
    5. Khalil Nimer & Muath Abdelqader & Cemil Kuzey & Ali Uyar, 2024. "Emission targeting and carbon emissions: The moderating effect of female directors," Business Strategy and the Environment, Wiley Blackwell, vol. 33(4), pages 3480-3504, May.
    6. Kalyani Mulchandani & Ketan Mulchandani & Sahil Singh Jasrotia, 2021. "Does gender diversity on firm’s board affect dividend payouts? Evidence from India," Future Business Journal, Springer, vol. 7(1), pages 1-11, December.
    7. Mike Adams & Wei Jiang & Tianshu Ma, 2024. "CEO power, corporate risk management, and dividends: disentangling CEO managerial ability from entrenchment," Review of Quantitative Finance and Accounting, Springer, vol. 62(2), pages 683-717, February.
    8. Yuan Yuan & Gaoliang Tian & Louise Yi Lu & Yangxin Yu, 2019. "CEO Ability and Corporate Social Responsibility," Journal of Business Ethics, Springer, vol. 157(2), pages 391-411, June.
    9. Ernest Gyapong & Ammad Ahmed & Collins G Ntim & Muhammad Nadeem, 2021. "Board gender diversity and dividend policy in Australian listed firms: the effect of ownership concentration," Asia Pacific Journal of Management, Springer, vol. 38(2), pages 603-643, June.
    10. Nattarinee Denlertchaikul & Pattanaporn Chatjuthamard & Pornsit Jiraporn & Piyachart Phiromswad, 2022. "Do Takeover Threats Stifle or Promote Managerial Efforts to Innovate? Evidence from Takeover Vulnerability, and Text-Based Measure of Innovation," Administrative Sciences, MDPI, vol. 12(3), pages 1-17, August.
    11. Cemil Kuzey & Habiba Al-Shaer & Ali Uyar & Abdullah S. Karaman, 2024. "Do board monitoring and audit committee quality help risky firms reduce CSR controversies?," Review of Quantitative Finance and Accounting, Springer, vol. 63(3), pages 1007-1045, October.
    12. Lin, Feng-Yi & Guan, Liming & Ho, Chia-Ling & Wang, Teng-Shih, 2022. "Examining the D&O insurance effect on managerial ability," Finance Research Letters, Elsevier, vol. 46(PA).
    13. Jebran, Khalil & Chen, Shihua, 2022. "Corporate policies and outcomes during the COVID-19 crisis: Does managerial ability matter?," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).
    14. Rehana Naheed & Muhammad Jawad & Munazza Naz & Bushra Sarwar & Rukhsana Naheed, 2021. "Managerial ability and investment decisions: Evidence from Chinese market," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(4), pages 985-997, June.

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