Agency Cost And Dividend: Evidence From Anti-Takeover Legislation

The paper uses an exogenous shock-passage of Anti-Takeover Laws as proxies of increased agency cost to investigate the relation between managerial entrenchment and dividend policy for a large number of U.S. industrial firms over the period 1981-1993. Consistent with conventional wisdom suggests that managers have a strong preference against dividends payments since paying dividends reduces cash subject to managerial discretion, this paper finds that firms with entrenched managers are less likely to pay dividends, specifically; firms have fewer propensities to pay dividends and lower dividend payout ratio after passage of Anti-Takeover Laws.