How investor pressure leads to higher dividend payouts

Academic research within the Institute for Innovation and Entrepreneurship recently featured in the LSE Business Review.

Dr Anna Grosman, Senior Lecturer within the Institute for Innovation and Entrepreneurship, along with Professor Ciaran Driver and Professor Pasquale Scaramozzino both of SOAS have published a paper entitled “Dividend policy and investor pressure” recently explored in the LSE Business Review.

Within Dividend policy and investor pressure, Ciaran, Grosman and Scaramozzino propose a counter-narrative to agency theory, which they call investor pressure. Within this narrative for explaining dividend payout, they analyse three main channels of influence for investor pressure: pressure arising from acquisitions activity; pressure arising from stricter corporate governance standards; and pressure through short-term institutional trading.

Their research results provide evidential support for a tilt away from agency theory in dividend research studies. Providing a unified framework for testing the consequences of investor pressure for dividend payout, their work suggests that investor pressure stemming from short-term horizons leads to excessive dividends.

In an LSE Business Review article, the research is explored within the context of the COVID-19 pandemic. To read the full LSE Business Review article, please visit their website.