Presenter: Fynn Sowinski, AU

Title: The differential effect of managerial biases on corporate payout policies

Abstract: I investigate the role of CEO/CFO overconfidence on a wide range of corporate payout dimensions. Based on an option-based measure of overconfidence, the findings suggest that biased CEOs and CFOs differ in their effect on corporate payout policies. CEO overconfidence is associated with a shift in the total payout mix from dividends to repurchases without significantly affecting the value of total payouts. Firms that have appointed an overconfident CFO significantly cut back on both dividends and share repurchases, which greatly reduces the total value of funds paid out to shareholders. The presented evidence is most consistent with theories predicting that overconfident managers retain earnings in order to fund bias-induced overinvestments. Furthermore, provided evidence suggests the dominance of CFOs in share repurchase decisions and that this dominance is related to power. Thus, this study underlines the importance of other top management team members besides the CEO in corporate decision-making. Finally, this paper does not point to an excess joint effect of overconfidence on payout policy decisions, as has previously been documented in the context of other firm policies.

Discussant: Steffen Meyer

PhD presentation as part of mandatory 1st or 3rd year presentation. The time is extended to one hour; the presenter has 40 minutes for the presentation, 5-10 minutes for the discussant, and 10-15 minutes for questions.

Organizers: Stefan Hirth and Anders Merrild Posselt