Executive incentives and payout policy: Empirical evidence from Europe

Amedeo De Cesari, Neslihan Ozkan

Research output: Contribution to journalArticle (Academic Journal)peer-review

14 Citations (Scopus)
634 Downloads (Pure)

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.
Original languageEnglish
Pages (from-to)70-91
Number of pages22
JournalJournal of Banking and Finance
Volume55
Early online date23 Dec 2014
DOIs
Publication statusPublished - 1 Jun 2015

Bibliographical note

Special issue: Global Governance and Financial Stability

Structured keywords

  • AF Corporate Finance

Keywords

  • Executive incentives
  • Dividends
  • Share repurchases
  • Europe

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