Value-Based Management and Payout Policy
Abstract
This study examines the relationship between the implementation of value-based management (VBM) and firms' payout policies. Analyzing the interaction between VBM and payout policies provides valuable insights into the effectiveness of VBM and its contribution to fulfilling shareholders' interests. We differentiate between VBM sophistication, which measures the extent of VBM implementation within or- ganizations, and the types of payouts, specifically dividends and share repurchases. Using a sample of 1,365 firm-years, our findings indicate that firms with high levels of VBM sophistication: (1) are more likely to pay dividends, (2) distribute moderate dividend ratios, and (3) prefer share repurchases as a means of payout. Moreover, we observe negative interaction effects between VBM and institutional ownership as well as investment opportunities on dividend payout ratios, while opposite-direc- tional interaction effects emerge when analyzing share repurchases. These results suggest that firms with high levels of VBM sophistication structure their payout policies in a more shareholder value-oriented manner compared to firms that merely follow VBM symbolically or not at all. Additional tests support the finding that deeply implemented VBM enhances shareholder-oriented payout policies.