Stakeholder Orientation and Corporate Payout Policy: Insights from State Legal Shocks

Ni, Xiaoran; Song, Wei; Yao, Jiaquan

Abstract

We employ a difference-in-differences estimation approach to examine the impact of stakeholder orientation on corporate payout policy. The empirical test exploits the enactment of US state-level constituency statutes, which allow directors to consider stakeholders and long-term interests in corporate decision making. We find that firms incorporated in states that have adopted constituency statutes significantly reduce share repurchases, whereas the effects of statute enactment on total payout and dividend payments are marginal and insignificant, respectively. We further show that the negative statute effect on share repurchases is more pronounced for firms that are in financial distress or are close to default, and firms in consumer-focused and high-polluting industries. Overall, our findings indicate that promoting stakeholder orientation can have a significant impact on corporate payout decisions.

Citation

Ni, X., Song, W., & Yao, J. (2020). Stakeholder Orientation and Corporate Payout Policy: Insights from State Legal Shocks. Journal of Banking and Finance, 121, Article 105970. https://doi.org/10.1016/j.jbankfin.2020.105970

• Journal Article Type: Article
• Acceptance Date: Oct 3, 2020
• Online Publication Date: Oct 4, 2020
• Publication Date: Dec 1, 2020
• Deposit Date: Aug 4, 2021
• Publicly Available Date: Apr 5, 2022
• Journal: Journal of Banking and Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 121
• Article Number: 105970
• DOI: https://doi.org/10.1016/j.jbankfin.2020.105970
• Keywords: Economics and Econometrics; Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5954876
• Publisher URL: https://www.sciencedirect.com/science/article/pii/S0378426620302326