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Stock Options and Dividend Protection

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  • Markus C. Arnold
  • Robert M. Gillenkirch
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    Abstract

    Stock-option programs (SOPs) became the dominant compensation instrument for top management in the nineties. Usually, they 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, in an increase in share repurchases. This paper analyzes different forms of dividend protection and addresses the importance of dividend protection in SOPs. Finally, the paper relates the theoretical analysis to empirical work on the link between share repurchases and SOPs.

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    Bibliographic Info

    Article provided by Mohr Siebeck, Tübingen in its journal Journal of Institutional and Theoretical Economics.

    Volume (Year): 161 (2005)
    Issue (Month): 3 (September)
    Pages: 453-

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    Handle: RePEc:mhr:jinste:urn:sici:0932-4569(200509)161:3_453:soadp_2.0.tx_2-a

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    Postal: Mohr Siebeck GmbH & Co. KG, P.O.Box 2040, 72010 Tübingen, Germany
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    Cited by:
    1. Olaf Korn & Clemens Paschke & Marliese Uhrig-Homburg, 2012. "Robust stock option plans," Review of Quantitative Finance and Accounting, Springer, vol. 39(1), pages 77-103, July.

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