Stock options as incentive contracts and dividend policy

Executive Stock Option Programs (SOPs) have become the dominant compensation instrument for top-management in recent years. The incentive effects of an SOP both with respect to corporate investment and financing decision
Executive Stock Option Programs (SOPs) have become the dominant compensation instrument for top-management in recent years. The incentive effects of an SOP both with respect to corporate investment and financing decisions critically depend on the design of the SOP. A specific problem in designing SOPs concerns dividend protection. Usually, SOPs are not dividend protected, i.e. any dividend payout decreases the value of a manager’s options. Empirical evidence shows that this results in a significant decrease in the level of corporate dividends and, at the same time, into an increase in share repurchases. Yet, few suggestions have been made on how to account for dividends in SOPs. This paper applies arguments from principal-agent-theory and from the theory of finance to analyze different forms of dividend protection, and to address the relevance of dividend protection in SOPs. Finally, the paper relates the theoretical analysis to empirical work on the link between share repurchases and SOPs. JEL classification: D82, G30, G35
show moreshow less

Download full text files

Export metadata

  • Export Bibtex
  • Export RIS

Additional Services

    Share in Twitter Search Google Scholar
Metadaten
Author:Markus C. Arnold, Robert M. Gillenkirch
URN:urn:nbn:de:hebis:30-18296
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (089)
Document Type:Working Paper
Language:English
Date of Publication (online):2005/10/10
Year of first Publication:2002
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2005/10/10
Tag:Executive stock options ; dividend protection; dividends ; managerial incentives ; share repurchases
Source:Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting ; 89
HeBIS PPN:201789795
Institutes:Wirtschaftswissenschaften
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

$Rev: 11761 $