Corporate Payout Policy and Managerial Stock Incentives

Fenn, George W.; Liang, Nellie
January 1999
Working Papers -- U.S. Federal Reserve Board's Finance & Economi;1999, p1
Working Paper
Working Paper
This paper investigates the policy of corporate payouts and managerial stock incentives. The authors consider how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial organizations between 1993-1997 and find that management share ownership encourages higher payouts by organizations with potentially the greatest agency problems--those with low market-to-book ratios and low management stock ownership. They also find that management stock options change the composition of payouts and that there is a strong negative relationship between dividends and management stock options, as predicted by Lambert, Lannen, and Larcker (1989), and a positive relationship between repurchases and management stock options. Results indicate that stock option growth may help to explain the increase in repurchases at the expense of dividends. This working paper is available at the US Federal Reserve Board. You can access this site by going to www.federalreserve.gov/pubs/workingpapers.htm.


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