Time Series Variation in the Efficacy of Executive Risk-Taking Incentives: The Role of Market-Wide Uncertainty

• 成果类型: Article
• 署名作者: Cadman, Brian D.; Campbell, John L.; Johnson, Ryan G.
• 署名单位: Utah System of Higher Education; University of Utah; University System of Georgia; University of Georgia; Indiana University System; Indiana University Bloomington; IU Kelley School of Business
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2021-0149
• 发表日期: 2024
• 页码: 113-141
• 关键词: option compensation; cross-section; STOCK-OPTIONS; earnings; determinants; INFORMATION; guidance; firm; pay

摘要

Boards of directors encourage risk -averse managers to take risky actions by providing stock options and severance pay. We demonstrate that the ability of these incentives to encourage risk -taking hinges on the level of uncertainty facing the manager. We confirm prior findings that stock option convexity encourages risk -taking but find that this relation only holds when market -wide uncertainty is low. We also confirm prior findings that severance pay encourages risk -taking but find that this relation only holds during high market -wide uncertainty and negative marketwide performance. Finally, we find that compensation committees respond to variation in uncertainty by adjusting the level of option grants. Our results suggest that the effectiveness of incentives to take risk varies with the market -wide uncertainty, and that boards consider this in annual compensation design.