Abstract:We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial firms during 1993-97. We find that management share ownership encourages higher payouts by firms with potentially the greatest agency problems-those with low market-to-book ratios and low management stock ownership. We also find that management stock options change the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert, Lannen, and Larcker (1989), and a positive relationship between repurchases and management stock options. Our results suggest that the growth in stock options may help to explain the rise in repurchases at the expense of dividends. * Earlier versions of this paper were titled "Good News and Bad News About Share Repurchases." The views expressed in this paper are those of the authors and not necessarily those of the Federal Reserve Board. We thank Stewart Myers, Manju Puri, and especially an anonymous referee for helpful comments, and Kyle Nagel, Mike Pizzi, Melissa Post, and Wendy Huang for outstanding research assistance.Among these are Berger, Ofek, and Yermack (1997) which examines how CEO stock and stock 1 options influence the choice of leverage, Denis, Denis, and Sarin (1997) which examines how insider stock ownership affects corporate diversification, and Mehran, Nogler, and Schwartz (1998) which examines how CEO share ownership and stock options influence voluntary liquidation decisions.

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Abstract:We examine how corporate payout policy is affected by managerial stock incentives using data on more than 1100 nonfinancial firms during 1993-97. We find that management share ownership encourages higher payouts by firms with potentially the greatest agency problems-those with low market-to-book ratios and low management stock ownership. We also find that management stock options change the composition of payouts. We find a strong negative relationship between dividends and management stock options, as predicted by Lambert, Lannen, and Larcker (1989), and a positive relationship between repurchases and management stock options. Our results suggest that the growth in stock options may help to explain the rise in repurchases at the expense of dividends. * Earlier versions of this paper were titled "Good News and Bad News About Share Repurchases." The views expressed in this paper are those of the authors and not necessarily those of the Federal Reserve Board. We thank Stewart Myers, Manju Puri, and especially an anonymous referee for helpful comments, and Kyle Nagel, Mike Pizzi, Melissa Post, and Wendy Huang for outstanding research assistance.Among these are Berger, Ofek, and Yermack (1997) which examines how CEO stock and stock 1 options influence the choice of leverage, Denis, Denis, and Sarin (1997) which examines how insider stock ownership affects corporate diversification, and Mehran, Nogler, and Schwartz (1998) which examines how CEO share ownership and stock options influence voluntary liquidation decisions.

The private equity market is an important source of funds for start-up firms, private middle-market firms, firms in financial distress, and public firms seeking buyout financing. Over the past fifteen years it has been the fastest growing corporate finance market, by an order of magnitude over the public equity and public and private bond markets. Despite its dramatic growth and increased significance for corporate finance, the private equity market has received little attention. This study examines the economic foundations of the private equity market, analyzes its development and current role in corporate finance, and describes the market's institutional structure. It examines the reasons for the market's explosive growth over the past fifteen years and highlights the main characteristics of that growth. It provides data on returns to private equity investors and analyzes the major secular and cyclical influences on returns. It describes the important investors, intermediaries, issuers, and agents in the market and their interactions with each other. Drawing on data from trade journals, the study also estimates the market's size as of year-end 1995.

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