Dividend Policy and Managerial Overconfidence: French Evidence

Abstract

This paper examines the impact of managerial overconfidence on dividend policy.The literature has identified two strands of reasoning. Deshmukh et al. (2013) argue that overconfident managers with relatively high investment needs perceive external funds as more costly than internal financing. This leads them to pay out lower dividends. Conversely, Wu and Liu (2011) claim that overconfident CEOs expect higher future cash flows and are prone to pay out higher dividends. We study a sample of 120 French firms for the period 2000–2015. Our results provide evidence that CEOs’ overconfidence plays a decisive role in explaining the dividend policy of French firms. Managerial overconfidence exerts a positive effect on firms’ dividend payouts.