CEO power and the likelihood of paying dividends: Effect of profitability and cash flow volatility

This study empirically investigates the relation between CEO power and the likelihood of dividend payouts. It argues that powerful CEOs pay dividends to establish reputation in capital markets to raise external financing at favorable terms. The net expected value of such reputation, however, depends on the likelihood of external financing, which is positively related to low profitability and high cash flow volatility. Empirical results show that powerful CEOs are more likely to pay and increase dividends when their firms face low profitability and high cash flow volatility.