Dividend Payout and Executive Compensation: Theory and Evidence

Bhattacharyya, Nalinaksha; Morrill, Cameron K.J.; Mawani, Amin

doi:10.2139/ssrn.326801

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Dividend Payout and Executive Compensation: Theory and Evidence

21 Pages Posted: 6 Nov 2002

See all articles by Nalinaksha Bhattacharyya

Cameron K.J. Morrill

University of Manitoba - Department of Accounting and Finance

Amin Mawani

York University - Department of Accounting

Date Written: May 2003

Abstract

Recent studies have documented an association between managerial compensation and firm dividend policy. Bhattacharyya (2000) develops a model of dividend payout that is based in the principal-agent paradigm. In Bhattacharyya's model, managerial quality and effort are unobservable to shareholders and therefore first best contracts are not possible. He demonstrates analytically that the second best compensation contract motivates high quality managers to retain and invest firm earnings, and motivates low quality managers to distribute income to shareholders. This study presents results of tobit regression analyses of US firm dividend payouts over the period 1992-2001 that are consistent with the Bhattacharyya model.

Note: Abstract previously titled 'Dividend Payout and Executive Compensation in US Firms'

Keywords: Dividend payout, Executive compensation, Earnings retention

JEL Classification: G35, J38

Suggested Citation: Suggested Citation

Bhattacharyya, Nalinaksha and Morrill, Cameron K.J. and Mawani, Amin, Dividend Payout and Executive Compensation: Theory and Evidence (May 2003). Available at SSRN: https://ssrn.com/abstract=326801 or http://dx.doi.org/10.2139/ssrn.326801