Doctor of Philosophy (PhD)


Finance (Business Administration)

Document Type



This dissertation studies a little-known executive compensation device called dividend equivalent rights (DERs). DERs entitle an executive to receive dividends, known as dividend equivalents (DEs), on unearned performance-based stocks and options. In the first essay we do empirical studies on the market reaction of news about DERs and the incentives that DERs can bring. We find that about 22% of S&P500 firms allow for these payments and about 10% actually make such payments. While investors react negatively to announcements of DE payments, DERs can be beneficial to shareholders by inducing a company to disgorge unproductive cash. If a firm allows DEs to be paid on the CEO’s unearned shares it is four times more likely to be a dividend payer and for firms already paying dividends, dividend payments are larger if DEs are allowed. In the second essay we estimate the value of dividend equivalents that are granted on an executive’s unvested stock options. We examine how much the dividend equivalents are worth to the executive and how costly they are to the company. We find that the dividend equivalents that are paid to the executive in cash are more valuable to the executive than the ones paid out in firm shares. This preference is stronger when the executive is more risk averse. We also find that the executive’s non-option wealth allocation, dividend payout level, the length of the options’ vesting period and the percentage of options that are granted with DERs are important factors that can affect the subjective value of the dividend equivalents.



Document Availability at the Time of Submission

Release the entire work immediately for access worldwide.

Committee Chair

Chance, Donald M.