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Executive Stock Option Plans and Corporate Dividend Policy

Published online by Cambridge University Press:  06 April 2009

Richard A. Lambert ,
William N. Lanen  and
David F. Larcker
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Abstract

This paper examines the association between the initialadoption of stock options for senior-level executives and subsequent changes in corporate dividend policy. The primary research hypothesis is that the addition of a stock option to a manager's compensation package provides an incentive for the executive to reduce corporate dividends. This hypothesis follows from the observation that executive stock options are generally not “dividend protected.” The results suggest that dividends are reduced relative to expected dividends. We interpret these results as suggesting that the personal incentives of executives can affect certain aspects of the observed corporate dividend policy.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989 , pp. 409 - 425
Copyright
Copyright © School of Business Administration, University of Washington 1989

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