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Federal Reserve Bank of Chicago
Working Paper Series
CEO overconfidence and dividend policy
Sanjay Deshmukh
Anand M. Goel
Keith M. Howe
Abstract

We develop a model of the effect of CEO overconfidence on dividend policy and empirically examine many of its predictions. Consistent with our main prediction, we find that the level of dividend payout is lower in firms managed by overconfident CEOs. We document that this reduction in dividends associated with CEO overconfidence is greater in firms with lower growth opportunities, lower cash flow, and greater information asymmetry. We also show that the magnitude of the positive market reaction to a dividend-increase announcement is lower for firms managed by overconfident CEOs. Our overall results are consistent with the predictions of our model.


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Sanjay Deshmukh & Anand M. Goel & Keith M. Howe, CEO overconfidence and dividend policy, Federal Reserve Bank of Chicago, Working Paper Series WP-09-06, 2009.
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Keywords: Chief executive officers ; Dividends
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