Corporate payout policy and managerial stock incentives

We examine how corporate payout policy is affected by managerial stock ince ntives using data on more than 1,100 nonfinancial firms during 1993-97. We find that management stock ownership is associated with higher payouts by f irms with potentially the greatest agency problems - those with low managem ent stock ownership and few investment opportunities or high free cash flow . We also find that management stock options are related to the composition of payouts. We find a strong negative relationship between dividends and m anagement stock options, as predicted by Lambert ct al (1989), acid a posit ive relationship between repurchases and management stock options. Our resu lts suggest that the growth in stock options may help to explain the rise i n repurchases at the expense of dividends. (C) 2001 Published by Elsevier S cience S.A.