Managerial Incentives And Risk Taking
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Managerial Incentives And Risk Taking
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Author : Naveen D. Daniel
language : en
Publisher:
Release Date : 2014
Managerial Incentives And Risk Taking written by Naveen D. Daniel and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014 with categories.
This paper provides empirical evidence of a strong causal relation between the structure of managerial compensation and investment policy, debt policy, and firm risk. Controlling for CEO pay-performance sensitivity (delta) and the feedback effects of firm policy and risk on the structure of the managerial compensation scheme, we find that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in Ramp;D, less investment in property, plant and equipment, more focus on fewer lines of business, and higher leverage. At the same time, we find that riskier policy choices in general lead to compensation structure with higher vega and lower delta. Stock-return volatility, however, has a positive effect on both vega and delta.
Managerial Incentives And Risk Taking
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Author : Oleksandra Klink
language : de
Publisher:
Release Date : 2010
Managerial Incentives And Risk Taking written by Oleksandra Klink and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with categories.
Managerial Incentives For Risk Taking And Internal Capital Allocation
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Author : Lorenzo Casavecchia
language : en
Publisher:
Release Date : 2017
Managerial Incentives For Risk Taking And Internal Capital Allocation written by Lorenzo Casavecchia and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
In this study, we show that the option-like structure of equity-based compensation encourages managerial risk-taking and provide new evidence on the way in which CEO's risk-taking could manifest itself in a multi-segment firm. Our results show that a greater sensitivity of managerial compensation to shareholder wealth -- as proxied by CEO's portfolio vega -- leads to greater risk-taking through active capital allocation. We then analyze the impact of risk-taking on shareholder wealth and demonstrate that risk-taking is positively associated with future stock returns. Overall, this article contributes to the literature by providing evidence that equity-based compensation does actually promote the alignment of interests between shareholders and managers.
A General Form Model Of Managerial Incentives And Risk Taking
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Author : Jonathan Fluharty-Jaidee
language : en
Publisher:
Release Date : 2017
A General Form Model Of Managerial Incentives And Risk Taking written by Jonathan Fluharty-Jaidee and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
The extant literature has used measurements of CEO risk-taking incentives which do not include the effects of termination provisions such as severance agreements. This paper provides a general form model that allows for the valuation and computation of CEO compensation structures including termination provisions. Constructing and using CEO 'death tables' as estimates for expected remaining CEO tenure this paper computes a complete estimate for vega as a proxy for CEO risk-taking incentives but also proposes a new, more direct, measure of risk-taking incentives -- compensation gamma. Results show that vega, regardless of whether termination provision are included, may be related to firm size, share prices, and R&D intensity and CAPEX intensity -- traditional proxies for risk-taking. Gamma is a direct measure of convexity of CEO compensation and proves to be more consistent with respect to firm size and share price. This paper also documents that severance increases risk-taking incentives under normal conditions.
Managerial Incentives And Risk Taking Behaviors Of Fund Managers
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Author : Seungyeon Won
language : en
Publisher:
Release Date : 2017
Managerial Incentives And Risk Taking Behaviors Of Fund Managers written by Seungyeon Won and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017 with categories.
This study was based on the hypothesis that a fund manager has incentive to take more risk with funds to conceal his actual management ability. A theoretical model was built to test this hypothesis. According to the model, when a fund manager's ability is not observable, a poor fund manager may increase a fund's risk to conceal his real ability, so that poor performance may be attributed to external market factors rather than ability. Previous studies have usually suggested that the different risk-taking behavior of fund managers is encouraged by the asymmetric delivery of information on fund returns. Unlike previous studies, this study focuses on real-world situations where a fund investor has more access to information about fund returns, and his decisions are often affected by concerns about fund reputation. This study highlights the fact that a fund manager has incentive to utilize fund investors' imperfect perception on his own managerial ability even under the condition that fund returns are all disclosed to fund investors. Additionally, this study applies Korean Equity fund data to empirically demonstrate that funds with lower risk-adjusted returns take more risks in the next period than do those with higher risk-adjusted returns, a finding that supports the results of the theoretical model.
Managerial Incentives Risk Management And Accounting Policy
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Author : Sonku Kim
language : en
Publisher:
Release Date : 1996
Managerial Incentives Risk Management And Accounting Policy written by Sonku Kim and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with categories.
Stock Options And Managerial Incentives For Risk Taking
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Author : Rachel M. Hayes
language : en
Publisher:
Release Date : 2015
Stock Options And Managerial Incentives For Risk Taking written by Rachel M. Hayes and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
We provide new evidence on the relationship between option-based compensation and risktaking behavior by exploiting the change in the accounting treatment of stock options following the adoption of FAS 123R in 2005. The implementation of FAS 123R represents an exogenous change in the accounting benefits of stock options that has no effect on the economic costs and benefits of options for providing managerial incentives. Our results do not support the view that the convexity inherent in option-based compensation is used to reduce risk-related agency problems between managers and shareholders. We show that all firms dramatically reduce their usage of stock options (convexity) after the adoption of FAS 123R and that the decline in option use is strongly associated with a proxy for accounting costs. There is little evidence that the decline in option usage following the accounting change results in less risky investment and financial policies.Internet Appendix attached in the end.
Risk Return Tradeoffs And Managerial Incentives
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Author : David Tsui
language : en
Publisher:
Release Date : 2015
Risk Return Tradeoffs And Managerial Incentives written by David Tsui and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2015 with categories.
Moral hazard theory posits that managerial risk aversion imposes agency costs on shareholders, and firms respond by providing risk-taking incentives to mitigate these costs. The underlying assumption in this literature is that increasing shareholder value requires increasing risk, yet there is limited empirical evidence supporting this assumption or the role of such risk-return tradeoffs in incentive compensation design. Using measures based on the firm's stock price, I find that shareholder value increases with risk, consistent with managerial risk aversion imposing agency costs on shareholders. I also find that firms provide managers with more risk-taking incentives when this risk-return relation is more positive and thus potential risk-related agency costs are more severe. This finding is strongest among firms where value increases with idiosyncratic rather than systematic risk, consistent with theory that these agency costs arise primarily from managers' exposure to idiosyncratic risk. Overall, these results are consistent with firms designing managerial compensation contracts to mitigate risk-related agency costs. Additional findings highlight that the incentives from equity-based compensation depend on the risk-return tradeoffs that managers face, providing one explanation for the conflicting results in prior literature regarding the incentives from managerial stock price exposure.
Value Risk Tradeoffs And Managerial Incentives
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Author : David Tsui
language : en
Publisher:
Release Date : 2018
Value Risk Tradeoffs And Managerial Incentives written by David Tsui and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018 with categories.
I examine the relation between shareholder value and managerial risk-taking and how this value-risk tradeoff influences managers' incentive compensation packages. I find that shareholder value increases with risk and therefore managerial risk aversion creates potential agency conflicts between managers and shareholders. I also find that firms provide managers with stronger risk-taking incentives when value-risk tradeoffs are steeper (i.e., the marginal benefit of risk-taking is greater) and therefore potential risk-related agency costs are more severe, particularly when shareholder value increases with idiosyncratic (rather than systematic) risk and managers are more risk-averse. Collectively, these results suggest that firms deliberately provide managers with risk-taking incentives to address risk-related agency conflicts and these incentives do not encourage widespread “excessive” risk-taking. I also provide an explanation for conflicting prior evidence on the incentive effects of managers' stock holdings by showing that these incentives vary based on firms' value-risk tradeoffs.
Incentives From Compensation Option And Risk Taking Hedge Funds
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Author : Ying Li
language : en
Publisher:
Release Date : 2007
Incentives From Compensation Option And Risk Taking Hedge Funds written by Ying Li and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2007 with categories.
With a new proxy for the compensation option to hedge funds management, we explore the managerial incentives and risk-taking behavior for an extended sample of hedge funds. We focus on the incentives in response to the compensation option as discussed in Goetzmann, Ingersoll, and Ross (2003), and to relative performance in a 'tournament' as proposed by Brown, Harlow, and Starks (1996). We find that managers do respond to the quot;moneynessquot; of their compensation option and the length of time a fund has stayed under-water by shifting their volatility strategies. We find that size, age, as well as management fee level all play a role in affecting this response. On the other hand, funds are also found to respond to relative performance as described in the 'tournament' theory.