Non-dividend protected executive options and dividend policy: Evidence from SFAS 123R

We examine how granting non-dividend protected executive options affects payout policy during the period 2001-2008. Using a difference-in-difference estimation along with the introduction of SFAS 123R, we find that firms with non-optioned executives increase dividends more than firms with optioned executives, post- versus pre-SFAS 123R. Our result questions whether non-dividend protected executive options are an impediment to paying dividends. Our result is robust pre-SFAS 123R dividends, consistent and inconsistent dividend payers and firms dropping options completely post-SFAS 123R, as well as controlling for endogeneity. Our evidence suggests that expensing of options has no effect on dividend policy.