This study investigates how CEO political ideology affects payout policy. Studying the CEOs of S&P 500 firms during 1997–2019 and measuring CEO political ideology by CEO political donations, we find that conservative CEOs are more likely to pay dividends and to make share repurchases, while also paying higher dividends. We find that conservative CEOs finance the higher dividends and share repurchases by utilizing the cash holdings and reducing capital and R&D expenditures. Nevertheless, CEO political ideology does not explain dividend cuts. This suggests that firms led by conservative CEOs exhibit levels of dividend flexibility comparable to those of firms led by other CEOs. Finally, we find that CEO conservatism has no effect on firm performance, firm value, R&D expenditure, and capital expenditure.

We show that in countries with more societal trust shareholders cast fewer votes at shareholder meetings and are more supportive of management proposals. This result is confirmed by instrumental variable regressions. It also holds at the U.S.-county level and for voting by U.S. institutional investors. Lower monitoring via voting relates less negatively to future firm performance in high-trust countries, suggesting that managers do not exploit greater discretion when trust is high. We also find a negative relation between trust and bond spreads. Our evidence supports theory arguing that trust substitutes for monitoring and has implications for investors’ optimal monitoring effort.

This paper provides new evidence that correlated abnormal compensation of CEOs and directors is symptomatic of agency problems associated with cronyism. We find that director abnormal compensation has a negative impact on the likelihood of CEO turnover and reduces the sensitivity of CEO turnover to poor stock performance. However, for firms with greater institutional ownership the adverse effects of director abnormal compensation are mitigated, and the negative impact of abnormal compensation on firm performance is reduced. These findings suggest that correlated abnormal compensation of CEOs and directors is likely associated with agency problems.