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USING DIVIDEND POLICY AND MANAGERIAL OWNERSHIP TO REDUCE AGENCY COSTS
Author(s) -
Schooley Diane K.,
Barney L. Dwayne
Publication year - 1994
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/j.1475-6803.1994.tb00198.x
Subject(s) - agency cost , dividend , dividend policy , chief executive officer , dividend yield , business , stock (firearms) , principal–agent problem , monetary economics , yield (engineering) , agency (philosophy) , economics , finance , corporate governance , shareholder , management , mechanical engineering , philosophy , materials science , epistemology , metallurgy , engineering
In this study we examine dividends and chief executive officer (CEO) stock ownership as interrelated mechanisms that may be used to reduce agency costs. We find a significant nonmonotonic relation between dividend yield and CEO stock ownership. Our evidence shows that until the CEO becomes entrenched, increased executive stock ownership reduces agency costs and decreases dividend yield. Beyond that point, increased stock ownership increases dividend yield. Whether additional stock ownership can reduce agency costs depends upon the CEO's degree of control in the firm.