Executive Options and Payout Policy in the 21st Century: A Study of Equity Incentives, Corporate Payout Policy, and the Effects of Disclosure Regulation

Sammanfattning: In this paper, we examine the relationships between executive equity-incentives and corporate payout policy. Using data on S&P 1500 firms from 2000 to 2019, we find that firms with higher executive options have lower total payouts, but that this relationship is weaker than found in earlier literature. We also find a negative relationship between executive stock ownership and total payout, casting doubt on the role of executive share ownership in mitigating the free cash flow problem. Furthermore, we examine the effects of a 2006 SEC regulation concerning executive compensation disclosure, hypothesizing that reduced information asymmetry could have mitigated agency conflicts associated with executive options and payout policy. Using a difference-in-differences estimation, we find that the regulation had no discernible impact on the relationship between executive options and total payout. In short, our findings suggest that executive equity-incentives alter the size and composition of firm payouts, and that the effectiveness of disclosure regulation in mitigating such issues is unclear.