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CEO and CFO equity compensation and dividend payout over the firm lifecycle

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  • Ding, Chao
  • Ho, Choy Yeing
  • Chang, Millicent

Abstract

We examine the separate and joint effects of CEO and CFO equity compensation on the dividend payout decision, taking into account changes in the relationship over the firm's lifecycle. Compensation contracts and dividend payout both are used to reduce agency costs, which change over a firm's lifecycle. Studies report a negative association between CEO equity compensation and dividend payout, suggesting a substitutionary relationship. Our results show that when the two are considered jointly, CFO equity compensation dominates CEO compensation, indicating the need for sophisticated financial expertise in the dividend decision. The relationship appears only in mature firms, signifying that agency problems are of most concern during the mature stage of the firm lifecycle.

Suggested Citation

  • Ding, Chao & Ho, Choy Yeing & Chang, Millicent, 2021. "CEO and CFO equity compensation and dividend payout over the firm lifecycle," Global Finance Journal, Elsevier, vol. 49(C).
    • Handle: RePEc:eee:glofin:v:49:y:2021:i:c:s1044028320300594
    DOI: 10.1016/j.gfj.2020.100562
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    More about this item

    Keywords

    Equity incentives; Dividends; Lifecycle; CEOs; CFOs;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G35 - Financial Economics - - Corporate Finance and Governance - - - Payout Policy

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