Corporate payout policy and managerial stock incentives

Corporate payout policy and managerial stock incentives We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1,100 nonfinancial firms during 1993–97. We find that management stock ownership is associated with higher payouts by firms with potentially the greatest agency problems – those with low management stock ownership and few investment opportunities or high free cash flow. We also find that management stock options are related to the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert et al (1989), and a positive relationship between repurchases and management stock options. Our results suggest that the growth in stock options may help to explain the rise in repurchases at the expense of dividends. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Financial Economics Elsevier

Corporate payout policy and managerial stock incentives

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Publisher
Elsevier
Copyright
Copyright © 2001 Elsevier Ltd
ISSN
0304-405x
D.O.I.
10.1016/S0304-405X(01)00039-3
Publisher site
See Article on Publisher Site

Abstract

We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1,100 nonfinancial firms during 1993–97. We find that management stock ownership is associated with higher payouts by firms with potentially the greatest agency problems – those with low management stock ownership and few investment opportunities or high free cash flow. We also find that management stock options are related to the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert et al (1989), and a positive relationship between repurchases and management stock options. Our results suggest that the growth in stock options may help to explain the rise in repurchases at the expense of dividends.

Journal

Journal of Financial EconomicsElsevier

Published: Apr 1, 2001

References

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