Managerial Risk-Taking Behavior and Equity-Based Compensation

Low, Angie

doi:10.2139/ssrn.934857

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Managerial Risk-Taking Behavior and Equity-Based Compensation

Fisher College of Business Working Paper No. 2006-03-003

42 Pages Posted: 19 Mar 2008 Last revised: 27 Sep 2010

See all articles by Angie Low

Angie Low

Nanyang Business School, Nanyang Technological University

Date Written: February 24, 2008

Abstract

I study managers' risk-taking behavior and how it is affected by equity-based compensation. I find that in response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 6%. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives, in particular, firms with low CEO portfolio sensitivity to stock return volatility. Furthermore, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking.

Keywords: Managerial risk-taking, Equity-based compensation, Staggered boards and poison pills

JEL Classification: G32, G34, J33, J41

Suggested Citation: Suggested Citation

Low, Angie, Managerial Risk-Taking Behavior and Equity-Based Compensation (February 24, 2008). Fisher College of Business Working Paper No. 2006-03-003, Available at SSRN: https://ssrn.com/abstract=934857 or http://dx.doi.org/10.2139/ssrn.934857