Executive compensation and dividend policy

Executive compensation and dividend policy This study examines the use of dividend provisions in executive compensation contracts to influence dividend policy. A sample is constructed with the largest companies in the oil and gas, defense/aerospace and food processing industries, where dividend-related agency costs are expected to be high. The results indicate that the existence of a dividend incentive in the compensation plan is positively associated with higher dividend payouts and yields, and higher annual changes in dividend levels. Evidence is also provided on firm characteristics associated with the use of a compensation contract with a dividend provision. The results are consistent with the theory that firms link compensation incentives to dividend payments to reduce conflicts between shareholders and management over dividend decisions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Corporate Finance Elsevier

Executive compensation and dividend policy

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Publisher
Elsevier
Copyright
Copyright © 1996 Elsevier Science B.V. All rights reserved
ISSN
0929-1199
DOI
10.1016/0929-1199(96)00003-X
Publisher site
See Article on Publisher Site

Abstract

This study examines the use of dividend provisions in executive compensation contracts to influence dividend policy. A sample is constructed with the largest companies in the oil and gas, defense/aerospace and food processing industries, where dividend-related agency costs are expected to be high. The results indicate that the existence of a dividend incentive in the compensation plan is positively associated with higher dividend payouts and yields, and higher annual changes in dividend levels. Evidence is also provided on firm characteristics associated with the use of a compensation contract with a dividend provision. The results are consistent with the theory that firms link compensation incentives to dividend payments to reduce conflicts between shareholders and management over dividend decisions.

Journal

Journal of Corporate FinanceElsevier

Published: Jul 1, 1996

References

  • The determinants of corporate leverage and dividend policies
    Barclay, M.; Smith, C.; Watts, R.
  • Industry influence on dividend policy
    Michel, A.
  • Growth, beta and agency costs as determinants of dividend payout ratios
    Rozeff, M.

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