Managerial entrenchment hypothesis and dividend payout policy
by Raheel Gohar; Ayesha Rashid
Afro-Asian J. of Finance and Accounting (AAJFA), Vol. 11, No. 2, 2021

Abstract: The influence of managerial entrenchment on dividend payout policies is studied for the period 2006 to 2014. The results of the study indicate that the ratio of the sum of shares owned by the CEO, the Chairman and the directors (i.e., insider ownership) is negatively related to both the likelihood and the payment of dividends. Even when controlling for firm size and leverage, it is found that the ratio of shares owned by the block holder shows negative and significant results (for both the logit and the tobit regression). This study proves that either the block holders are part of the management or they have strong board representation, so they do not consider dividend payouts as a disciplining and monitoring mechanism. Investment opportunities and leverage have a negative and significant relationship with both the likelihood and the level of payouts.

Online publication date: Thu, 11-Mar-2021

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