  We investigate how the relationship between managerial stock incentives and
the dividend payout policy is impacted by the business cycle by using the data
of S&P 1500 companies during 2000-2018. We find a strong negative relationship
between managerial stock options and annual dividend payouts of companies for
the full sample. Although the direction of the relationship is also negative
for the recession period, the coefficient is found to be insignificant. We also
find that the mentioned relationship may vary during the recession depending on
the size of the company. The impact of stock options on the dividend payout is
negative for medium-sized companies and the coefficient is both economically
and statistically significant. The direction of impact changes for large-cap
companies indicating to deterioration of the CEO voting power in those
companies and less agency problem. We also determine that the percentage of
shares held by the CEO has a positive impact on annual dividends distributed
for large-cap companies, whereas this relationship changes in times of
recession.
