Between Scylla and Charybdis: CEO Political Ideology, Dividends and Downsizing During the Pandemic

Using a proprietary dataset, we study whether CEO political ideology affected how S&P 500 firms reacted  to  the  Covid-19  pandemic.   We  hypothesize  that  conservative  CEOs  are  more likely  to downsize their workforce while meeting dividend expectations.  Conversely, other CEOs should be less  likely  to  meet  dividend  expectations  and  less  likely  to  downsize.The evidence  supports  this hypothesis.  We  also  find  that  conservative  CEOs  use  temporary downsizing  to  avoid  an  earnings loss, which in turn enables them meet dividend expectations. Importantly, CEOs used the dividend forecasts for 2020 as their benchmark rather than the 2019 dividends to make their dividend decision.