Corporate Payout Policy and Managerial Stock Incentives

35 Pages Posted: 4 Apr 2000

See all articles by George W. Fenn

George W. Fenn

Cambridge Finance Partners

Nellie Liang

Brookings Institution

Date Written: March 2000

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.

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

JEL Classification: G35

Suggested Citation

Fenn, George W. and Liang, Nellie, Corporate Payout Policy and Managerial Stock Incentives (March 2000). Available at SSRN: https://ssrn.com/abstract=214868 or http://dx.doi.org/10.2139/ssrn.214868

George W. Fenn

Cambridge Finance Partners ( email )

Cambridge, MA 02139
United States
617-575-6613 (Phone)

HOME PAGE: http://www.cambridgefinance.com

Nellie Liang (Contact Author)

Brookings Institution

1775 Massachusetts Ave, NW
Washington, DC 20036
United States

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