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Non-dividend protected executive options and dividend policy: Evidence from SFAS 123R

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  • Canil, Jean

Abstract

We examine how granting non-dividend protected executive options affects payout policy during the period 2001–2008. Using a difference-in-difference estimation along with the introduction of SFAS 123R, we find that firms with non-optioned executives increase dividends more than firms with optioned executives, post- versus pre-SFAS 123R. Our result questions whether non-dividend protected executive options are an impediment to paying dividends. Our result is robust pre-SFAS 123R dividends, consistent and inconsistent dividend payers and firms dropping options completely post-SFAS 123R, as well as controlling for endogeneity. Our evidence suggests that expensing of options has no effect on dividend policy.

Suggested Citation

  • Canil, Jean, 2017. "Non-dividend protected executive options and dividend policy: Evidence from SFAS 123R," Journal of Corporate Finance, Elsevier, vol. 44(C), pages 15-33.
    • Handle: RePEc:eee:corfin:v:44:y:2017:i:c:p:15-33
    DOI: 10.1016/j.jcorpfin.2017.03.003
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    Cited by:

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    2. Hong, Jieying, 2019. "Managerial compensation incentives and corporate debt maturity: Evidence from FAS 123R," Journal of Corporate Finance, Elsevier, vol. 56(C), pages 388-414.
    3. Canil, Jean & Karpavičius, Sigitas, 2022. "Managerial risk-taking incentives and cash holding in U.S. firms: Evidence from FAS 123R," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 605-628.
    4. Grey, Colette & Flynn, Antoinette & Donnelly, Ray, 2020. "Management compensation contracts and distribution policies in the US technology sector," International Review of Financial Analysis, Elsevier, vol. 67(C).
    5. Karpavičius, Sigitas & Yu, Fan, 2018. "The impact of dividend-protected CEO equity incentives on firm value and risk," Economic Modelling, Elsevier, vol. 71(C), pages 16-24.
    6. Hyeong Joon Kim & Seongjae Mun & Seung Hun Han, 2023. "Corporate social responsibility and the alignment of CEO and shareholders wealth: Does a strong alignment induce or restrain CSR?," Corporate Social Responsibility and Environmental Management, John Wiley & Sons, vol. 30(2), pages 720-741, March.

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    More about this item

    Keywords

    Executive options; Dividends; Share repurchases; SFAS 123R; Expensing;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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