This paper examines the impact of managerial stock incentives on corporate payout policy, using data from over 1100 nonfinancial firms between 1993 and 1997. The authors find that management share ownership encourages higher payouts, particularly in firms with low market-to-book ratios and low management stock ownership. They also observe that management stock options alter the composition of payouts, with a strong negative relationship between dividends and management stock options, and a positive relationship between repurchases and management stock options. The results suggest that the growth in stock options may explain the rise in repurchases relative to dividends. The study controls for free cash flow and other firm characteristics, providing robust evidence that stock incentives mitigate agency costs in firms with severe excess cash flow problems.This paper examines the impact of managerial stock incentives on corporate payout policy, using data from over 1100 nonfinancial firms between 1993 and 1997. The authors find that management share ownership encourages higher payouts, particularly in firms with low market-to-book ratios and low management stock ownership. They also observe that management stock options alter the composition of payouts, with a strong negative relationship between dividends and management stock options, and a positive relationship between repurchases and management stock options. The results suggest that the growth in stock options may explain the rise in repurchases relative to dividends. The study controls for free cash flow and other firm characteristics, providing robust evidence that stock incentives mitigate agency costs in firms with severe excess cash flow problems.