Corporate Payout Policy and Managerial Stock Incentives

By George W. Fenn. 2001

839 citations recorded by the source corpus.

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.

Subfields: Accounting, Strategy and Management

View Paper: https://www.semanticscholar.org/paper/eb699a51c907dbd76958eaed8e2d1ef6a0993dac

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Citations in the corpus

Executive Compensation: A Multidisciplinary Review of Recent Developments (2007, positive): “Finally, testing the assumption that stock options provide executives with incentives to reduce dividend payouts, Fenn and Liang (2001) found that stock options were positively associated with increased open market share repurchases at the expense of dividends.”
Why Do Firms Pay Dividends? International Evidence on the Determinants of Dividend Policy (2008, background): “on the substitution of repurchases for dividends in the US and Fenn and Liang (2001) and Lambert, Lanen, and Larcker (1989) for evidence on the link between dividend payments and the use of executive stock options in the US. 12 See Bouzoraa (1998), Masui (1998), and Prokisch (1998) for evidence from”
The Cash-Flow Permanence and Information Content of Dividend Increases Versus Repurchases (2000, background): “Finally, Jagannathan et al. (2000) show that repurchasing "rms have higher three-year cash-#ow volatility prior to the distribution year.”
When a Buyback Isn't a Buyback: Open Market Repurchases and Employee Options (2002, neutral): “These numbers are larger than reported by Guay and Harford (2000). However, my sample comes from a more recent time period, and restricting my sample to firms on Execucomp results in larger firms.”
The effect of financial reporting quality on corporate dividend policy (2017, neutral): “Prior research has shown that reporting quality plays an important role in corporate governance (e.g., Bushman and Smith 2001) and that corporate governance can affect dividends (e.g., Fenn and Liang 2001; John et al. 2015).”
Taxation, Dividends, and Share Repurchases: Taking Evidence Global (2013, neutral): “Prior research (Dittmar (2000), Fama and French (2001), and Fenn and Liang (2001)) shows that financial and utility firms have motives to repurchase stock that differ from those of nonfinancial firms.”