Essays on executive compensation and dividend policy
This dissertation contains two chapters: the first chapter examines the impact of sovereign wealth fund (SWF) ownership on firm executive compensation and the second examines the impact that various dividend payout policies have on stock prices. Below are the individual abstracts for each chapter. CHAPTER 1: Sovereign wealth funds are major players in the global markets. We contribute to the corporate governance literature by examining the possible value SWFs bring to their domestic holdings. We examine in particular the impact of SWF ownership on firm executive compensation. Using data on Kuwaiti SWFs, we find that having an SWF as an ultimate owner diminishes pay–performance sensitivity. This pay performance diminishment is greater, the higher the cash flow rights of the SWF. Moreover, having the SWF as an ultimate owner in a firm’s ownership chain does not alleviate the adverse effects of the divergence in cash-flow and control rights. This evidence supports the notion that SWFs impose agency costs on their targets. (JEL G15, G23, G32, G34, G38) CHAPTER 2: Previous research, specifically Larkin et al. (2017), has examined the relationship between dividend smoothing and stock prices, coming to a ‘puzzling’ conclusion that investors do not value firms that smooth their dividends over those that do. I revisit this question by considering the level of payout in an analysis of dividend smoothing. I use a modified version of the payout ratio and a novel way of categorizing low/high payout firms to produce two major findings. First, investors value firms that put an effort to payout more of their earnings higher than firms that do not; this payout price premium is present in all industries. Second, investors do value high-payout dividend-smoothing firms more than low-payout dividend smoothers. Finally, by taking the extreme portfolios on the payout and smoothness spectrum, I follow the performance of a portfolio of high-payout high-smoothing minus low-payout low-smoothing firms and find clear and significant negative performance of this portfolio, which depicts the price premium I am testing for. This performance is not explained by Fama-French 5 factor or Carhart momentum factor models. (JEL G32, G35).
executive compensation, payout policy, sovereign wealth fund
University of Illinois - Urbana-Champaign
Networked Digital Library of Theses and Dissertations
University of Illinois at Urbana-Champaign