Managerial risk-taking behavior and equity-based compensation |
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Authors: | Angie Low |
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Institution: | Division of Banking and Finance, Nanyang Business School, Nanyang Technological University, Singapore |
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Abstract: | Equity-based compensation affects managers’ risk-taking behavior, which in turn has an impact on shareholder wealth. In response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 6%. This risk reduction is concentrated among firms with low managerial equity-based incentives, in particular firms with low chief executive officer portfolio sensitivity to stock return volatility. Furthermore, the risk reduction is value-destroying. Finally, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking. |
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Keywords: | G32 G34 J33 J41 |
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