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Dividend payout and executive compensation: theory and evidence

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  • Nalinaksha Bhattacharyya
  • Amin Mawani
  • Cameron Morrill

Abstract

Bhattacharyya (2007) develops a model in which compensation contracts motivate high-quality managers to retain and invest firm earnings, while low-quality managers are motivated to distribute income to shareholders. In equilibrium, the model shows that there is a positive (negative) relationship between the earnings retention ratio (dividend payout ratio) and managerial compensation. Results of tests of US data show that executive compensation is positively (negatively) associated with earnings retention (dividend payout). Our results indicate that corporate dividend policy is perhaps best understood by considering the payout ratio (dividends divided by earnings), rather than the level of cash dividends alone. Copyright (c) 2008 The Authors. Journal compilation (c) 2008 AFAANZ.

Suggested Citation

  • Nalinaksha Bhattacharyya & Amin Mawani & Cameron Morrill, 2008. "Dividend payout and executive compensation: theory and evidence," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 48(4), pages 521-541.
  • Handle: RePEc:bla:acctfi:v:48:y:2008:i:4:p:521-541
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-629X.2007.00255.x
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    Cited by:

    1. Chai, D.H., 2010. "Foreign Corporate Ownership and Dividends," Working Papers wp401, Centre for Business Research, University of Cambridge.
    2. Eisdorfer, Assaf & Giaccotto, Carmelo & White, Reilly, 2015. "Do corporate managers skimp on shareholders' dividends to protect their own retirement funds?," Journal of Corporate Finance, Elsevier, vol. 30(C), pages 257-277.
    3. repec:ebl:ecbull:eb-16-00470 is not listed on IDEAS

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