CEO Power And The Likelihood Of Paying Dividends

An important factor concerning the survival and growth of a company is the cash dividend payment policy.A reasonable and stable dividend policy not only conveys good news to the market and thus stabilises the share price,but also reduces the agency costs between shareholders and operators,thereby increasing the value of the company.From the perspective of management power theory,the CEO is considered to be the chief "planner" and the architect of important corporate decisions,and research has shown that there is a strong relationship between the amount of power of the CEO and corporate investment decisions and financial decisions.Combined with agency theory,the CEO,as the manager of the company,can act opportunistically and may make irrational investment,merger and acquisition decisions for his own enjoyment or personal external reputation,thus hindering the healthy development of the company.Companies therefore need to pay dividends in order to reduce the resources available to management,thus achieving limits on managerial discretion Therefore,for more powerful CEOs,they are often reluctant to make financial decisions to distribute cash dividends due to potential opportunistic behaviours.However,in some cases even powerful CEOs choose to distribute cash dividends.Dividend signal theory suggests that dividends,as a form of return on investment for investors,are effective in sending positive messages to the market and raising share prices.An increase in share price will make the company more attractive to investors and help the company build a good reputation among investors,thus reducing its cost of external financing.On the other hand,the increased power of the CEO can lead to investor concerns about poor internal governance and thus demand higher returns on investment,so that when a company is under performing(low profitability)or facing cash flow problems(high cash flow volatility),even a powerful CEO needs to pay cash dividends to build a good reputation for maintaining a healthy company due to the potential need for low-cost financing.Even powerful CEOs need to make a choice between paying cash dividends to maintain a positive reputation and not paying cash dividends.With this in mind,this paper focuses on the relationship between CEO power and the likelihood of paying cash dividends.,and further investigates the effect of the potential financing needs of the company on the above relationship from the perspective of the company sending signals to the market through the payment of dividends in order to build a good reputation among investors and thus reduce financing costs.The aim is to conduct a more in-depth study on the distribution of cash dividends in China.This paper forms an evaluation system of the magnitude of CEO power by combing through relevant domestic and international literature.In addition,this paper refers to the relevant literature and constructs indicators to measure the potential financing needs of companies by studying their profitability and cash flow fluctuation status.Finally,this paper uses Logit and linear probability models to test the relationship between the influence of CEO power on the likelihood of cash dividend payment and the moderating effect of the potential financing needs of the company,and various methods to conduct robustness tests to empirically prove the relevant hypotheses of this paper and its robustness.The empirical results show that(1)the greater the power of the CEO,the lower the probability that the company chooses to pay and increase cash dividends(2)when the listed company has low profitability and high cash flow volatility,the greater the power of the CEO,the greater the probability that the listed company pays and increases dividends.