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We document a positive relation between shareholder monitoring and total payout to shareholders using two monitoring proxies that jointly consider an investor's ability and incentive to monitor. We find that this relation is even stronger for firms with poor growth options and with greater potential for agency problems. Unlike traditional proxies, our two proxies do not exhibit any endogeneity with payout policy. We further show that monitoring is positively associated with future improvements in payout and operating performance. These findings are consistent with the prediction that shareholder monitoring leads to higher payout through increased efficiency and reduced agency costs.

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