Get 20M+ Full-Text Papers For Less Than $1.50/day. Start a 14-Day Trial for You or Your Team.

Learn More →

The Effects of Executive Stock Options and Stock Bonuses on Payout Policies in Taiwan

The Effects of Executive Stock Options and Stock Bonuses on Payout Policies in Taiwan This study investigates how executive stock‐based compensation affects the payout policies of a company. Stock bonuses, which are dividend‐protected, induce executives to pay out cash dividends. Conversely, stock options, which are not dividend‐protected, discourage the payment of dividends. We posit that the structure of executive stock‐based compensation plays a crucial role in determining the payout policies of a firm, particularly for those firms with higher percentages of institutional investors and shareholders with ultimate controlling power. We further examine the effects of the 2008 stock option expensing policy reform in Taiwan as well as the repercussions, if any, that this policy had on payout choices in 2009. The empirical results not only indicate that executive stock‐based compensation has a conspicuous influence on the payout policies of a firm, but also that there is a positive relation between stock bonuses and cash dividends. Furthermore, in the case of Taiwan, which has a relatively low corporate income tax rate, firms with higher percentages of shareholders with ultimate controlling power have less preference to pay cash dividends and greater preference to retain profits within the company. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Asia-Pacific Journal of Financial Studies Wiley

The Effects of Executive Stock Options and Stock Bonuses on Payout Policies in Taiwan

Download PDF
29 pages

Loading next page...
 
/lp/wiley/the-effects-of-executive-stock-options-and-stock-bonuses-on-payout-qBsVSgecqN
Publisher
Wiley
Copyright
© 2012 Korean Securities Association
ISSN
2041-9945
eISSN
2041-6156
DOI
10.1111/j.2041-6156.2012.01068.x
Publisher site
See Article on Publisher Site

Abstract

This study investigates how executive stock‐based compensation affects the payout policies of a company. Stock bonuses, which are dividend‐protected, induce executives to pay out cash dividends. Conversely, stock options, which are not dividend‐protected, discourage the payment of dividends. We posit that the structure of executive stock‐based compensation plays a crucial role in determining the payout policies of a firm, particularly for those firms with higher percentages of institutional investors and shareholders with ultimate controlling power. We further examine the effects of the 2008 stock option expensing policy reform in Taiwan as well as the repercussions, if any, that this policy had on payout choices in 2009. The empirical results not only indicate that executive stock‐based compensation has a conspicuous influence on the payout policies of a firm, but also that there is a positive relation between stock bonuses and cash dividends. Furthermore, in the case of Taiwan, which has a relatively low corporate income tax rate, firms with higher percentages of shareholders with ultimate controlling power have less preference to pay cash dividends and greater preference to retain profits within the company.

Journal

Asia-Pacific Journal of Financial Studies – Wiley

Published: Apr 1, 2012

References

  • Executive stock‐based compensation and firms’ cash payout: The role of shareholders’ tax‐related payout preferences
    Aboody, Aboody; Kasznik, Kasznik
  • Production, information costs and economic organization
    Alchian, Alchian; Demsetz, Demsetz
  • Executive financial incentives and payout policy: Firm responses to the 2003 dividend tax cut
    Brown, Brown; Liang, Liang; Weisbenner, Weisbenner
  • Dividend taxes and corporate behavior: Evidence from the 2003 dividend tax cut
    Chetty, Chetty; Saez, Saez
  • The use of equity grants to manage optimal equity incentive levels
    Core, Core; Guay, Guay
  • Disappearing dividends: Changing firm characteristics or lower propensity to pay?
    Fama, Fama; French, French
  • Corporate payout policy and managerial stock incentives
    Fenn, Fenn; Liang, Liang
  • Institutional holdings and payout policy
    Grinstein, Grinstein; Michaely, Michaely
  • Dividends, share repurchases, and the substitution hypothesis
    Grullon, Grullon; Michaely, Michaely
  • The cash‐flow permanence and information content of dividend increase versus repurchases
    Guay, Guay; Harford, Harford
  • Understanding the determinants of managerial ownership and the link between ownership and performance
    Himmelberg, Himmelberg; Hubbard, Hubbard; Palia, Palia
  • Open‐market stock repurchase and stock price behavior when management values real investment
    Isagawa, Isagawa
  • Financial flexibility and the choice between dividends and stock repurchases
    Jagannathan, Jagannathan; Stephens, Stephens; Weisbach, Weisbach
  • Performance pay and top‐management incentives
    Jensen, Jensen; Murphy, Murphy
  • When a buyback isn’t a buyback: Open market repurchases and employee options
    Kahle, Kahle
  • Stock options and firm dividend policy: Evidence from Toronto stock exchange
    Kouki, Kouki
  • Executive stock option plans and corporate dividend policy
    Lambert, Lambert; Lanen, Lanen; Larcker, Larcker
  • Corporate ownership around the world
    La Porta, La Porta; Lopez‐de‐Silanes, Lopez‐de‐Silanes; Shleifer, Shleifer
  • Agency problems and dividend policies around the world
    La Porta, La Porta; Lopez‐de‐Silanes, Lopez‐de‐Silanes; Shleifer, Shleifer; Vishny, Vishny
  • Bank borrowing and corporate risk management
    Lookman, Lookman
  • Price reactions to dividend initiations and omissions: Overreaction or drift?
    Michaely, Michaely; Thaler, Thaler; Womack, Womack
  • Controlling shareholder and executive incentive structure: Canadian evidence
    Park, Park; Nelson, Nelson; Torabzadeh, Torabzadeh
  • The investment opportunity set and corporate financing, dividends, and compensation policies
    Smith, Smith; Watts, Watts
  • Executive compensation and dividend policy
    White, White
  • Do corporations award CEO stock options effectively?
    Yermack, Yermack