CEO Entrenchment and the Information in Dividend Decreases

We use unique hand-collected data to conduct an initial examination of the relationship between the information in dividend decreases and proxies of chief executive officer (CEO) entrenchment. The evidence suggests that CEO entrenchment weakens the negative stock market reaction to dividend decreases. However, the evidence relating CEO entrenchment to long-term firm outcomes is mixed. Following dividend cuts, CEO entrenchment is associated with better short-term profitability, but bankruptcy is more likely. Following dividend suspensions, long-term profitability is worse, but bankruptcy is less likely. Overall, the evidence is consistent with the notion that entrenched CEOs obscure the bad news in dividend announcements, which is later revealed in the long run.