Managerial Career Concerns, Information Withholding, and Corporate Dividend Policies
This paper examines the impact of managers’ career concerns on their incentives to withhold information by smoothing dividends. Our tests exploit the staggered adoption of the Inevitable Disclosure Doctrine (IDD) by U.S. states as an exogenous increase in managers’ career concerns. We find that the adoption of the IDD leads to a 9% decrease in the responsiveness of dividends to earnings changes. This decrease is more pronounced for CEOs who have greater mobility and whose perceived ability is more uncertain, as well as for firms whose trade secrets are more important. We further show that the information in both dividend increases and dividend cuts declines after the adoption of the IDD. Collectively, our findings provide evidence that managers withhold private information, both good and bad, to mitigate their career concerns.