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Stock Options and Total Payout

Published online by Cambridge University Press:  01 April 2009

Charles J. Cuny ,
Gerald S. Martin  and
John J. Puthenpurackal
Charles J. Cuny
Affiliation:
Washington University, Olin School of Business, 1 Brookings Dr., St. Louis, MO 63130. cuny@wustl.edu
Gerald S. Martin
Affiliation:
American University, Kogod School of Business, 4400 Massachusetts Ave., Washington, DC 20016 and Texas A&M University, Mays Business School, 4218 TAMU, College Station, TX 77843. gmartin@american.edu
John J. Puthenpurackal
Affiliation:
University of Nevada Las Vegas, College of Business, Box 456008, Las Vegas, NV 89154. john.puthenpurackal@unlv.edu
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Abstract

In this paper, we examine how stock option usage affects total corporate payout. Using fixed-effects panel data estimators on various samples of ExecuComp firms from 1993 to 2005, we find the higher the executive stock options, the lower the total payout, ceteris paribus. We also find some evidence that firms increase payouts through repurchases in order to offset earnings per share dilution that occurs due to usage of executive and non-executive stock options. However, incentives from not having dividend protection for options appear to dominate those from antidilution, resulting in lower total payout for firms with higher options usage.

Type
Research Articles
Information
Journal of Financial and Quantitative Analysis , Volume 44 , Issue 2 , April 2009 , pp. 391 - 410
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2009

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