Does firm payout policy affect shareholders' dissatisfaction with directors?

In this study we investigate the information content of firm payout policy to shareholders. We focus on the association between a firm's payout policy and shareholders' satisfaction with board directors, as expressed by the percentage of negative or withheld votes for directors during annual elections (shareholders' dissent voting). We fill a gap in the literature by using shareholders' voting results in the election of board members at annual meeting as a setting to examine shareholder perception of firms' payout policies. We find that higher share repurchase and/or higher dividend payout are associated with lower shareholders' dissenting votes. We also find that such relationship is conditional on the level of free cash flow, firm future performance, the degree of management entrenchment, and the type of institutional investors. Our study contributes to the payout literature by providing empirical evidence that shows the outcome of shareholders' votes in director elections may be influenced by the board of directors' payout decisions.