Outside Opportunities, Managerial Risk Taking, and CEO Compensation

• 成果类型: Article
• 署名作者: Chen, Wen; Jung, Sumi; Peng, Xiaoxia; Zhang, Ivy Xiying
• 署名单位: City University of Hong Kong; Yonsei University; Utah System of Higher Education; University of Utah; University of California System; University of California Riverside
• 刊物名称: ACCOUNTING REVIEW
• ISSN/ISSBN: 0001-4826
• DOI: 10.2308/TAR-2018-0614
• 发表日期: 2022
• 页码: 135-160
• 关键词: STOCK OPTION PORTFOLIOS; TRADE SECRETS; executive-compensation; corporate governance; MARKET; incentives; turnover; firm; pay; OWNERSHIP

摘要

Exploiting the setting of staggered adoption of the Inevitable Disclosure Doctrine (IDD) in U.S. state courts, we examine how quasi-exogenous restrictions of outside employment opportunities affect CEO compensation structure. The IDD adoption constrains executives' ability to work for competitors, which likely decreases CEOs' tendency to take risks by increasing the cost of job loss and reducing the reward to risk taking. We expect the board to respond by increasing the sensitivity of CEO wealth to stock volatility (vega) to encourage risk taking. We find a significant increase in vega post-IDD adoption. The effect is stronger among CEOs with greater career concerns. The effect also increases with the ex ante CEO mobility and the importance of trade secrets, suggesting the board increases vega more when there is a greater reduction in CEO outside opportunities. Overall, we provide new evidence on how external labor market frictions affect the convexity of CEO compensation.