{"title":"CEO Compensation Incentives and Playing It Safe: Evidence from FAS 123R","authors":"N. Carline, O. Pryshchepa, Bo Wang","doi":"10.2139/ssrn.3774070","DOIUrl":null,"url":null,"abstract":"This paper uses FAS 123R regulation to examine how reduction in CEO compensation incentives<br>affects managerial `playing-it-safe' behavior. Using proxies reflecting deliberate managerial efforts<br>to change firm risk, difference-in-difference tests show that affected firms drastically reduce both<br>systematic and idiosyncratic risks, leading to an 8% decline in total firm risk. These reductions in<br>risk are achieved by shifting to safer, but low-Q segments while closing the riskier ones, without<br>significant changes in investment levels. Our findings suggest that decrease in risk-taking <br>incentives provided by option compensation, when not compensated for by alternative incentives or<br>governance mechanisms, exacerbates risk-related agency problem.<br>","PeriodicalId":204440,"journal":{"name":"Corporate Governance & Finance eJournal","volume":"14 1","pages":"0"},"PeriodicalIF":0.0000,"publicationDate":"2021-01-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":"0","resultStr":null,"platform":"Semanticscholar","paperid":null,"PeriodicalName":"Corporate Governance & Finance eJournal","FirstCategoryId":"1085","ListUrlMain":"https://doi.org/10.2139/ssrn.3774070","RegionNum":0,"RegionCategory":null,"ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":null,"EPubDate":"","PubModel":"","JCR":"","JCRName":"","Score":null,"Total":0}
引用次数: 0
Abstract
This paper uses FAS 123R regulation to examine how reduction in CEO compensation incentives affects managerial `playing-it-safe' behavior. Using proxies reflecting deliberate managerial efforts to change firm risk, difference-in-difference tests show that affected firms drastically reduce both systematic and idiosyncratic risks, leading to an 8% decline in total firm risk. These reductions in risk are achieved by shifting to safer, but low-Q segments while closing the riskier ones, without significant changes in investment levels. Our findings suggest that decrease in risk-taking incentives provided by option compensation, when not compensated for by alternative incentives or governance mechanisms, exacerbates risk-related agency problem.
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