Risk Return Tradeoffs And Managerial Incentives
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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.
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 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.
Uncertainty Risk And Incentives
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Author :
language : en
Publisher:
Release Date : 2013
Uncertainty Risk And Incentives written by and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2013 with Risk categories.
"Uncertainty has qualitatively different implications than risk in studying executive incentives. The authors study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with managerial effort. Investors who face greater uncertainty desire faster learning, and consequently offer higher managerial incentives to induce higher effort from the manager. In contrast to the standard negative risk-incentive trade-off this 'learning-by-doing' effect generates a positive relation between probability uncertainty and incentives. They document empirical support for this prediction."--Abstract.
The Theory Of Entrepreneurship
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Author : Chandra S. Mishra
language : en
Publisher: Springer
Release Date : 2014-12-04
The Theory Of Entrepreneurship written by Chandra S. Mishra and has been published by Springer this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-12-04 with Business & Economics categories.
The Theory of Entrepreneurship examines the interiors of the entrepreneurial value creation process, and offers a new unified and comprehensive theory to afford empirical investigations as well as delineate a broader view of the entrepreneurial contextual milieu.
Optimal Risk Return Trade Offs Of Commercial Banks
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Author : Jochen Kühn
language : en
Publisher: Springer Science & Business Media
Release Date : 2006-09-28
Optimal Risk Return Trade Offs Of Commercial Banks written by Jochen Kühn and has been published by Springer Science & Business Media this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006-09-28 with Business & Economics categories.
This book criticizes the fact that profitability measures derived from capital market models such as the Sharpe ratio and the reward-to-VaR ratio are proposed for loan portfolios, although it is not proven whether their risk-return trade-offs are optimal for banks. The authors demonstrate that even the reward-to-VaR ratio, which is developed for valuating loan portfolios, can be highly misleading. They also show how market discipline, capital requirements, and insured deposits affect decision-making.
Brookings Wharton Papers On Financial Services 2000
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Author : Robert E. Litan
language : en
Publisher: Brookings Institution Press
Release Date : 2010-12-01
Brookings Wharton Papers On Financial Services 2000 written by Robert E. Litan and has been published by Brookings Institution Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010-12-01 with Political Science categories.
The third in a series of annual volumes on the financial sector from the Brookings Institution and the Wharton School at the University of Pennsylvania explores the ongoing process of globalization in the financial services industry. Leading financial experts from the corporate, government, and academic communities examine global trends in banking, in reinsurance industries, and in securities markets; the challenges these trends pose for national regulations; the evolution of global accounting standards; the alleged effects of global hedge funds on capital flows into and out of emerging markets; and the erosion of legal barriers to the establishment of foreign financial services firms around the world.Opening remarks by Secretary of the Treasury Lawrence Summers present both national security and economic arguments for direct American support for increased global interdependence in trade in goods and services, including U.S. support for international financial institutions.
The Economics Of The Business Firm
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Author : Harold Demsetz
language : en
Publisher: Cambridge University Press
Release Date : 1997
The Economics Of The Business Firm written by Harold Demsetz and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Business & Economics categories.
The essays in this volume discuss the theory of the business firm and its applications in economics.
Qfinance
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Author : Bloomsbury Publishing
language : en
Publisher: Bloomsbury Publishing
Release Date : 2014-11-20
Qfinance written by Bloomsbury Publishing and has been published by Bloomsbury Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2014-11-20 with Business & Economics categories.
QFINANCE: The Ultimate Resource (5th edition) is the first-step reference for the finance professional or student of finance. Its coverage and author quality reflect a fine blend of practitioner and academic expertise, whilst providing the reader with a thorough education in the may facets of finance.