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.
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