Executive incentives and payout policy: Empirical evidence from Europe

Amedeo De Cesari and Neslihan Ozkan

Journal of Banking & Finance, 2015, vol. 55, issue C, 70-91

Abstract: We investigate how corporate payout policy is influenced by executive incentives, i.e. stock and option holdings, stock option deltas and stock-based pay-performance sensitivity for 1,650 publicly listed firms from the UK, Germany, France, Italy, the Netherlands and Spain, over the period from 2002 to 2009. Our results show that executive stock option holdings and stock option deltas are associated with lower dividend payments in our sample of European countries, where we do not observe any presence of dividend protection for executive stock options. We find that this relationship is mainly driven by exercisable stock options and by options that are in the money. Additionally, we observe that executive stock option holdings and stock option deltas have a negative impact on total payout, suggesting that executives do not substitute share repurchases for dividends. Furthermore, the fraction of share repurchases in total payout increases as executive stock option holdings and stock option deltas increase. Finally, our results show that executive share ownership and stock-based pay-performance sensitivity may mitigate agency conflicts by significantly increasing the level of total payout.

Keywords: Executive incentives; Dividends; Share repurchases; Europe (search for similar items in EconPapers)
JEL-codes: G32 G34 G35 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (20)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:55:y:2015:i:c:p:70-91

DOI: 10.1016/j.jbankfin.2014.12.011

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