Corporate Payout Policy and Managerial Stock Incentives

George W. Fenn, Nellie Liang
2000 Social Science Research Network  
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
more » ... anagement stock options, as predicted by Lambert, Lannen, and Larcker (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. JEL Classification: G30; G32 Among these are Berger, Ofek, and Yermack (1997) which examines how CEO stock and stock 1 options influence the choice of leverage, Denis, Denis, and Sarin (1997) which examines how insider stock ownership affects corporate diversification, and Mehran, Nogler, and Schwartz (1998) which examines how CEO share ownership and stock options influence voluntary liquidation decisions.
doi:10.2139/ssrn.214868 fatcat:xfeux7pqcfdsbmalkmryhqcthe