Amedeo De Cesari

Executive incentives and payout policy: empirical evidence from Europe

We investigate how corporate payout policy is influenced by executive incentives, i.e. stock and option holdings, stock options delta, and stock-based pay-performance sensitivity for 1,650 publicly listed firms from the UK, Germany, France, Italy, the Netherlands, and Spain, over the period from 2002 to 2009. Our results show that executive stock option holdings and stock options delta are associated with lower dividend payments in our sample of European countries, where we do not observe any presence of dividend protection for executive stock options. We find that this relationship is mainly driven by exercisable stock options and by options that are in-the-money. Additionally, we observe that executive stock option holdings and stock options delta have a negative impact on total payout suggesting that executives do not substitute share repurchases for dividends. Furthermore, the fraction of share repurchases in total payout increases as executive stock option holdings and stock options delta increase. Finally, our results show that executive share ownership and stock-based pay-performance sensitivity may mitigate agency conflicts by significantly increasing the level of total payout.

The Effects of Ownership and Stock Liquidity on the Timing of Repurchase Transactions

We analyze detailed monthly data on U.S. open market stock repurchases (OMRs) that recently became available following stricter disclosure requirements. We find evidence that OMRs are timed to benefit non-selling shareholders. We present evidence that the profits to companies from timing repurchases are significantly related to ownership structure. Institutional ownership reduces companies’ opportunities to repurchase stock at bargain prices. At low levels, insider ownership increases timing profits and at high levels it reduces them. Stock liquidity increases profits from timing OMRs.

The waiting period of initial public offerings

Abstract The length of time it takes an IPO firm to go public (called ‘waiting period’) reflects multiple layers of scrutiny from underwriters, auditors, venture capitalists, institutional investors, and regulators. Accordingly, we show that the waiting period is a good barometer of ex ante uncertainty about future cash flows and that it has predictive power after the firm goes public. We find that firms marked by short waiting periods experience lower underpricing and less uncertainty and superior stock/operating performance in the aftermarket. We also report that smaller firms are taking longer to go public after SOX Act, thus providing justification for the 2012 JOBS Act.

Overpayment, Financial Distress, and Investor Horizons

Firms that follow excessive payout policies (over-payers) are higher on the financial distress spectrum and have lower survival rates than under-payers. In addition, over-payers endure lower future sales and asset growth than under-payers. Exogenous import tariff reductions, which increase product market competition and impact negatively on cash flows, reduce the likelihood of overpayment. We interpret this as evidence consistent with a financial flexibility channel explaining the relation between excessive payouts and financial distress, rather than a risk-shifting mechanism. Our finding of a positive association between excessive payouts and financial distress risk is robust to using different definitions of overpayment and financial distress, various empirical specifications and tests mitigating the impact of confounding effects.