2018/09/19 by Fabrizio Ferri, Nan Li
Business, Management and Accounting · #Corporate Finance and Governance #Auditing, Earnings Management, Governance #Financial Reporting and Valuation Research
paper · doi:10.1017/s0022109018001114
Does option-based compensation affect payout policy? To address this question, we examine the adoption of mandatory expensing of stock options. Our identification strategy exploits the fact that the reduction in option-based compensation after the accounting change varies with the firm-specific expected accounting impact. Across a battery of tests, we do not find that (accounting-driven) reductions in option-based pay cause dividends to increase or repurchases to decrease. Our results contrast with the widely held belief that option-based pay has a significant causal influence on payout policy and cast doubts on its role in the shift from dividends to repurchases.