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Executive Remuneration and the Payout Decision

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  • Geiler, P.H.M.

    (Tilburg University, Center For Economic Research)

  • Renneboog, L.D.R.

    (Tilburg University, Center For Economic Research)

Abstract

We analyze the payout channel choice of listed UK firms and examine whether the choice between dividends, share repurchases, a combination of payout channels, or complete earnings retention is affected by investor sentiment, taxation, major shareholder ownership, and in particular the CEO’s compensation package. The payout choice can have an immediate effect on the value of the CEO’s stock options and restricted stock, whereby anticipated dividends drive down the value of her equity-based pay if it is not dividend-protected whereas share repurchases may have a positive impact. We use a quantile regression analysis to examine various payout scenarios as well as a nested logit model which studies payout choice conditional on changing payout levels. We find that it is the CEO’s personal wealth as reflected by her compensation package rather than shareholder preferences which has the strongest impact on the firm’s payout policy.

Suggested Citation

  • Geiler, P.H.M. & Renneboog, L.D.R., 2014. "Executive Remuneration and the Payout Decision," Discussion Paper 2014-032, Tilburg University, Center for Economic Research.
  • Handle: RePEc:tiu:tiucen:d9ae7344-0a29-4aa0-a016-87123eb2c8fd
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    Cited by:

    1. Artem E. Anilov & Irina V. Ivashkovskaya, 2018. "Do Boards Of Directors Affect CEO Behavior? Evidence From Payout Decisions," HSE Working papers WP BRP 69/FE/2018, National Research University Higher School of Economics.
    2. Geiler, Philipp & Renneboog, Luc, 2015. "Taxes, earnings payout, and payout channel choice," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 37(C), pages 178-203.

    More about this item

    Keywords

    executive compensation; payout policy; dividends; share repurchases; market sentiment;

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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