The latter appears to have happened. Old economy companies have decreased dividends, or at least decreased the rate of growth of dividends, while new economy companies rarely pay dividends. This has caused overall dividend rates to fall (Fama and French, 1999). Moreover, the evidence suggests that there is indeed a connection between the stock option explosion and lower dividend rates. For example, Jolls (1998) finds that companies with option-rich executives appear to be substituting stock repurchases for dividends, which is exactly in line with the incentives provided by options
