Overpayment, Financial Distress, and Investor Horizons

Dimitris Andriosopoulos, Amedeo De Cesari, Konstantinos Stathopoulos

Research output: Working paper

Abstract

Firms that follow excessive payout policies (over-payers) have significantly higher financial distress risk and lower survival compared to under-payers, consistent with risk-shifting from shareholders to creditors in distressed firms. All else equal, the presence of institutional investors with long-term investment horizons in a firm is associated with overpayment. A transition analysis indicates the existence of a reciprocal relation between overpayment and financial distress, highlighting the feedback effects between overpayment and distress. In addition, over-payers endure smaller future sales and assets growth, and experience a significant future increase in the overall riskiness of their assets, compared to under-payers.
LanguageEnglish
Place of PublicationGlasgow
Number of pages45
Publication statusPublished - 12 Jan 2016

Fingerprint

Investors
Financial distress
Assets
Payout policy
Shareholders
Risk-shifting
Institutional investors
Feedback effect
Investment horizon
Distress
Riskiness

Keywords

  • payout policy
  • financial distress
  • firm survival
  • institutional investor
  • over-payers
  • corporate governance

Cite this

Andriosopoulos, D., De Cesari, A., & Stathopoulos, K. (2016). Overpayment, Financial Distress, and Investor Horizons. Glasgow.
Andriosopoulos, Dimitris ; De Cesari, Amedeo ; Stathopoulos, Konstantinos. / Overpayment, Financial Distress, and Investor Horizons. Glasgow, 2016.
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Andriosopoulos, D, De Cesari, A & Stathopoulos, K 2016 'Overpayment, Financial Distress, and Investor Horizons' Glasgow.

Overpayment, Financial Distress, and Investor Horizons. / Andriosopoulos, Dimitris; De Cesari, Amedeo; Stathopoulos, Konstantinos.

Glasgow, 2016.

Research output: Working paper

TY - UNPB

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AU - Andriosopoulos, Dimitris

AU - De Cesari, Amedeo

AU - Stathopoulos, Konstantinos

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N2 - Firms that follow excessive payout policies (over-payers) have significantly higher financial distress risk and lower survival compared to under-payers, consistent with risk-shifting from shareholders to creditors in distressed firms. All else equal, the presence of institutional investors with long-term investment horizons in a firm is associated with overpayment. A transition analysis indicates the existence of a reciprocal relation between overpayment and financial distress, highlighting the feedback effects between overpayment and distress. In addition, over-payers endure smaller future sales and assets growth, and experience a significant future increase in the overall riskiness of their assets, compared to under-payers.

AB - Firms that follow excessive payout policies (over-payers) have significantly higher financial distress risk and lower survival compared to under-payers, consistent with risk-shifting from shareholders to creditors in distressed firms. All else equal, the presence of institutional investors with long-term investment horizons in a firm is associated with overpayment. A transition analysis indicates the existence of a reciprocal relation between overpayment and financial distress, highlighting the feedback effects between overpayment and distress. In addition, over-payers endure smaller future sales and assets growth, and experience a significant future increase in the overall riskiness of their assets, compared to under-payers.

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KW - firm survival

KW - institutional investor

KW - over-payers

KW - corporate governance

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M3 - Working paper

BT - Overpayment, Financial Distress, and Investor Horizons

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Andriosopoulos D, De Cesari A, Stathopoulos K. Overpayment, Financial Distress, and Investor Horizons. Glasgow. 2016 Jan 12.