June 1999

Corporate Payout Policy and Managerial Stock Incentives

George W. Fenn and Nellie Liang

Abstract:

We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial firms during 1993-97. We find that management share ownership encourages higher payouts by firms with potentially the greatest agency problems--those with low market-to-book ratios and low management stock ownership. We also find that management stock options change the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert, Lannen, and Larcker (1989), and a positive relatinship 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.

Full paper (1291 KB Postscript)

Keywords: Dividends, share repurchases, executive stock options, stock incentives

PDF: Full Paper

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