When shareholder power kicks in: Corporate financialization as ratchet behaviour and sticky payouts

The rise of payout ratios has been ascribed by financialization scholars to shareholder value orientation (SVO), a governance practice associated with dire consequences. However, it remains unclear how SVO translates into the behaviour that causes these consequences. Yet, identifying behaviour would not only allow us to causally infer what SVO entails for other firm stakeholders and wider society but also to unearth the institutional configurations that catalyze or inhibit it. Using data on all stock-listed firms in the world from 1985 to 2023 this paper shows that SVO operates through ratchet behaviour, where shareholders refuse to yield ground when profits decrease. I first illustrate theoretically how this downward rigidity of shareholder remuneration ratchets up payout ratios and structures aggregate payout ratios along the lines of the frequency of ratchet behaviour. Finally, staggered difference-in-differences show that ratchet events indeed cause firms to exhibit persistently higher payout ratios for a decade.