Stakeholder orientation and corporate payout policy: Insights from state legal shocks

Ni, Xiaoran, Song, Wei and Yao, Jiaquan (2020) Stakeholder orientation and corporate payout policy: Insights from state legal shocks. Journal of Banking & Finance, 121, [105970]. (doi:10.1016/j.jbankfin.2020.105970).

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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.

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Stakeholder Orientation and Corporate Payout Policy_Insights from State Legal Shocks - Accepted Manuscript

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Accepted/In Press date: 3 October 2020

e-pub ahead of print date: 4 October 2020

Published date: December 2020

Additional Information: Funding Information: We thank Carol Alexander (the editor), two anonymous referees, and Xin Chang for their valuable comments. Xiaoran Ni acknowledges financial support from the National Natural Science Foundation of China (No. 71802170), and the Key Laboratory of Econometrics (Xiamen University), Ministry of Education. Jiaquan Yao acknowledges financial support from the National Natural Science Foundation of China (No. 71502152). All errors are our own. Publisher Copyright: © 2020 Elsevier B.V.

Keywords: Constituency statutes, Payout Decision, Share Repurchases, Stakeholder orientation