Managerial entrenchment and payout policy: A catering effect

Daniel Gyimah, Ernest Gyapong* (Corresponding Author)

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

7 Citations (Scopus)
9 Downloads (Pure)


Agency theory suggests that entrenched managers are less likely to pay dividends. However, according to the catering theory, external pressures from investors can force managers to increase dividend payments. Hence, we test whether entrenched managers respond to investor demand for dividends and share repurchases. Using a large sample of 9,677 US firms over the period 1990-2016 (i.e. a total of 80,478 firm-year observations), we test and find evidence that managerial entrenchment negatively impacts dividend payments. Our findings suggest that catering effects weaken the negative impact of managerial entrenchment on payout policy and that in firms with entrenched managers an increase in the propensity to pay dividends is conspicuous only when there is external investor demand for dividends. Our results indicate that while insiders and institutional owners might not necessarily favour dividend payments, firms respond to catering incentives when dominated by insiders but not institutional owners. Overall, our findings are consistent with the view that dividend payments are a result of external pressures to reduce agency problems associated with firms run by entrenched managers.
Original languageEnglish
Article number101600
Number of pages18
JournalInternational Review of Financial Analysis
Early online date10 Nov 2020
Publication statusPublished - Jan 2021

Bibliographical note

We thank Collins Ntim for useful comments. We also thank seminar participants at Massey University, Coventry University, and the 28th EBES Conference (2019).


  • catering theory
  • managerial entrenchment
  • dividends
  • Share repurchases
  • payout policy
  • Dividends
  • Catering theory
  • Managerial entrenchment
  • Payout policy


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