Shareholder-Creditor Conflict and Payout Policy

Abstract

This paper studies how the conflict of interest between shareholders and creditors affects corporate payout policy. Using mergers between lenders and equity holders of the same firm as an exogenous shock to the conflict between shareholders and creditors, I show that firms pay out less when there is less conflict between shareholders and creditors, suggesting that shareholder-creditor conflict may induce firms to pay out more at the expense of creditors. I also find that the effect is stronger for firms in financial distress.