Managerial entrenchment and payout policy: A catering effect

Daniel Gyimah, Ernest Gyapong

Research output: Working paper


This paper examines the mediating role of catering effects on the relationship between managerial entrenchment and payout policy. We test and find evidence for the ‘outcome model’ that managerial entrenchment negatively impacts dividend payments. Our findings support the argument that catering effects mediate the negative impact of managerial entrenchment on payout policy. Specifically, we find an increase in the propensity to pay dividends for firms with entrenched managers only when there is external investor demand for dividends. While insiders and institutional owners might not necessarily favour dividend payments, our findings suggest that managers respond to catering incentives when dominated by insiders but not institutional owners. Overall, we find that catering plays a significant role in reducing agency problems associated with firms run by entrenched managers.
Original languageEnglish
Number of pages51
Publication statusPublished - 8 Oct 2019


  • catering theory
  • managerial entrenchment
  • corporate governance
  • pay-out policy

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