Essays on Payout Policy Choices and Disclosures

In the first chapter, I exploit a unique setting related to retail dividend investors to examine whether managers adjust voluntary disclosure choices in response to firms’ inclusion in stock screeners (i.e., digital tools used by retail investors to filter securities). While retail investors are increasingly important in capital markets, managers face significant challenges in engaging their desired retail investor base due to retail investors’ awareness costs. The inclusion in popular stock screeners can alleviate this engagement friction by increasing the firm’s visibility and the likelihood that retail investors will process the firm’s disclosure. I exploit the launch and subsequent expansion of the first freely accessible and highly influential dividend stock screener for retail dividend investors in 2010. I find that newly included managers increase dividend guidance. Additionally, retail investors’ trading activity increases, and the market reacts more strongly to dividend guidance announcements. Taken together, these findings suggest that managers adopt a visibility-triggered disclosure strategy to engage desired retail investors, and that stock screeners play an important role in the functioning of capital markets. In the second chapter, coauthored with Zachary Kaplan, Lauren Vollon, and Xiaoxi Wu, we introduce buyback guidance as a novel voluntary disclosure and examine why some repurchasing firms (“guiders”) publicly disclose repurchase forecasts while others (“non-guiders”) remain silent. Our empirical evidence shows that buyback guidance helps mitigate agency problems associated with excess cash by credibly signaling a commitment to sustained capital return. First, guidance enhances valuation for mature, cash-rich firms that benefit from steady payouts: guiders experience higher announcement returns, stronger long-horizon associations between returns and repurchases, and more negative reactions when they suspend guidance. Second, guiders repurchase more consistently and in greater amounts, with buybacks more closely tracking improvements in operating performance. Combined with the finding that guidance tends to serve as a lower bound rather than a precise target, this pattern suggests guiders commit to the disclosed amount while retaining upward flexibility, further mitigating agency costs by matching outflows of cash to inflows of cash. Third, this credible commitment comes at a cost: guiders pay 1–5% more for their repurchased shares than non-guiders, consistent with reduced flexibility to time the market. Taken together, our results suggest that the decision to issue buyback guidance evolves endogenously with firms’ repurchase policies and underlying payout motives. In the third and final chapter, coauthored with Tim Martens, we examine whether a firm’s payout policy influences investors' beliefs about the value of its investments. We argue that the uncertainty underlying the investment process and the commitment implied by the payout policy jointly affect investors' valuation of a firm's investment. Leveraging the high uncertainty surrounding the timing and outcomes of the innovation process, we predict managers will increase their payout commitments as uncertainty resolves positively. Consistent with this hypothesis, we find that managers with more successful and valuable innovations raise sticky dividends while reducing more flexible share repurchases. The higher commitment of dividend payments implies a different information value for investors compared to share repurchases. By exploiting the plausibly exogenous timing of patent grants (i.e., the resolution of uncertainty), we provide asset-level evidence that investors assign a higher value to patents granted following dividend increases but find no evidence they do so following repurchase authorizations.