Empirical evidence on the relation between stock option compensation and risk taking

• 成果类型: Article
• 署名作者: Rajgopal, S; Shevlin, T
• 署名单位: University of Washington; University of Washington Seattle
• 刊物名称: JOURNAL OF ACCOUNTING & ECONOMICS
• ISSN/ISSBN: 0165-4101
• DOI: 10.1016/S0165-4101(02)00042-3
• 发表日期: 2002
• 关键词: cash flow sensitivities; corporate-investment; management; association; DISCLOSURES; OIL

摘要

We examine whether executive stock options (ESOs) provide managers with incentives to invest in risky projects. For a sample of oil and gas producers, we examine whether the coefficient of variation of future cash flows from exploration activity (our proxy for exploration risk) increases with the sensitivity of the value of the CEO's options to stock return volatility (ESO risk incentives). Both ESO risk incentives and exploration risk are treated as endogenous variables by adopting a simultaneous equations approach. We find evidence that ESO risk incentives has a positive relation with future exploration risk taking. Additional tests indicate that ESO, risk incentives exhibits a negative relation with oil price hedging in a system of equations where ESO risk incentives and hedging are allowed to beendogenously determined. Overall, our results are consistent with ESOs providing managers with incentives to mitigate risk-related incentive problems. (C) 2002 Elsevier Science B.V. All rights reserved.