Download or read book Managerial Risk Taking and CEO Excess Compensation written by Rahat Jafri and published by . This book was released on 2014 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines risk taking and CEO excess compensation problems in U.S firms to determine their impact on shareholders wealth. Literature suggests a positive effect of CEO incentive risk and strong corporate governance on CEO risk taking. Furthermore, the strong governance mitigates excess compensation problem. Controlling for governance quality and incentive risk, we provide empirical evidence of a significant association between risk taking and CEO excess compensation. When we also control for pay-performance sensitivity (delta) and feedback effects of incentive compensation on CEO risk taking, we find that higher use of incentive pay encourages risk taking, and due to a high exposure to risk CEOs draws excess compensation. Furthermore, we find that the excess compensation problem is more serious with CEOs taking high risk than with those taking low risk. Finally, we find that CEO risk taking also has structural impacts on CEO compensation.

Download or read book Managerial Risk Taking and CEO Excess Compensation written by Syed Rahat Ali Jafri and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Risk Taking and CEO Compensation written by Fan Ye and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper aims to analyze the impacts of compensation incentives and CEO power on firm's risk-taking by using stock return volatility (Srisk) and earnings volatility (Erisk) as the proxies of firm's risk-taking level, and by using pay-volatility sensitivity (PVS) and CEO-pay slice (CPS) as the proxies of compensation incentives and CEO power, respectively. By applying ordinary least square (OLS) regression and two-stage least square (2SLS) regression on obtained data, this paper provides strong empirical evidence that PVS and CPS have negative impact on earnings volatility and stock return volatility. In addition, the negative impact of PVS on managerial risk-taking is greater for CEOs with lower CPS than that for CEOs with higher CPS. That is, EBC discourages CEOs from taking more risks, and more powerful CEOs are less risk-averse than less powerful CEOs when granted EBC.

Download or read book Pay Without Performance written by Lucian A. Bebchuk and published by Harvard University Press. This book was released on 2004 with total page 308 pages. Available in PDF, EPUB and Kindle. Book excerpt: The company is under-performing, its share price is trailing, and the CEO gets...a multi-million-dollar raise. This story is familiar, for good reason: as this book clearly demonstrates, structural flaws in corporate governance have produced widespread distortions in executive pay. Pay without Performance presents a disconcerting portrait of managers' influence over their own pay--and of a governance system that must fundamentally change if firms are to be managed in the interest of shareholders. Lucian Bebchuk and Jesse Fried demonstrate that corporate boards have persistently failed to negotiate at arm's length with the executives they are meant to oversee. They give a richly detailed account of how pay practices--from option plans to retirement benefits--have decoupled compensation from performance and have camouflaged both the amount and performance-insensitivity of pay. Executives' unwonted influence over their compensation has hurt shareholders by increasing pay levels and, even more importantly, by leading to practices that dilute and distort managers' incentives. This book identifies basic problems with our current reliance on boards as guardians of shareholder interests. And the solution, the authors argue, is not merely to make these boards more independent of executives as recent reforms attempt to do. Rather, boards should also be made more dependent on shareholders by eliminating the arrangements that entrench directors and insulate them from their shareholders. A powerful critique of executive compensation and corporate governance, Pay without Performance points the way to restoring corporate integrity and improving corporate performance.

Download or read book Executive Compensation written by Friedrich Kley and published by Nomos Verlagsgesellschaft. This book was released on 2017 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The empirical analyses of data from large German public companies that are presented in this book show that the introduction of long-term orientated remuneration components for corporate executives increases their willingness to invest in riskier investment portfolios, at least in the short term. The study furthermore demonstrates that a payment model which emphasises equity-based remuneration elements is not sufficient to increase executives' long-term orientation. The results of the study's final analysis show that payment of executives in large German public companies has become more consistent across the board in recent years.

Download or read book Executive Compensation and Business Policy Choices at U S Commercial Banks written by Robert DeYoung and published by DIANE Publishing. This book was released on 2010-08 with total page 57 pages. Available in PDF, EPUB and Kindle. Book excerpt: This study examines whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms. The authors find strong evidence that bank CEOs responded to contractual risk-taking incentives by taking more risk; bank boards altered CEO compensation to encourage executives to exploit new growth opportunities; and bank boards set CEO incentives in a manner designed to moderate excessive risk-taking. These relationships are strongest during the second half of the author¿s sample, after deregulation and technological change had expanded banks' capacities for risk-taking. Charts and tables.

Download or read book Executive Compensation and Managerial Risk Taking written by Jeffrey L. Coles and published by . This book was released on 2014 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper provides empirical evidence of a strong relation between the structure of managerial compensation and both investment policy and debt policy. Higher sensitivity of CEO wealth to stock volatility (vega) is associated with riskier policy choices, including relatively more investment in Ramp;D, more focus on fewer lines of business, and higher leverage. These results are consistent with the hypothesis that higher vega in the managerial compensation scheme gives executives the incentive to implement policy choices that increase risk. Our results also indicate that these investment and financial policy choices are among the primary mechanisms through which vega affects stock price volatility.

Download or read book The Handbook of the Economics of Corporate Governance written by Benjamin Hermalin and published by Elsevier. This book was released on 2017-09-18 with total page 762 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Handbook of the Economics of Corporate Governance, Volume One, covers all issues important to economists. It is organized around fundamental principles, whereas multidisciplinary books on corporate governance often concentrate on specific topics. Specific topics include Relevant Theory and Methods, Organizational Economic Models as They Pertain to Governance, Managerial Career Concerns, Assessment & Monitoring, and Signal Jamming, The Institutions and Practice of Governance, The Law and Economics of Governance, Takeovers, Buyouts, and the Market for Control, Executive Compensation, Dominant Shareholders, and more. Providing excellent overviews and summaries of extant research, this book presents advanced students in graduate programs with details and perspectives that other books overlook. - Concentrates on underlying principles that change little, even as the empirical literature moves on - Helps readers see corporate governance systems as interrelated or even intertwined external (country-level) and internal (firm-level) forces - Reviews the methodological tools of the field (theory and empirical), the most relevant models, and the field's substantive findings, all of which help point the way forward

Download or read book Managerial Risk Taking Incentives and Firm Risk in the Post Regulatory Era written by Tanseli Savaser and published by . This book was released on 2014 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide evidence that there has been a fundamental change in the relationship between managerial risk taking incentives and firm risk after 2002, a period characterized by significant regulatory changes concerning executive compensation practices in public corporations. A consequence of the regulatory changes is a drop in CEO stock option grants, translated into significantly lower risk-taking incentives. We show that firms with different risk profiles have responded to regulatory changes differently. Riskier firms decreased the stock option grants, thus risk-taking incentives to their CEOs the most. Yet, the changes in risk-taking incentives have not been accompanied by changes in firm risk. As a result, the relationship between managerial risk-taking incentives and firm risk becomes negative in the post-regulatory era.

Download or read book Outside Opportunities Managerial Risk Preferences and CEO Compensation written by Wen Chen and published by . This book was released on 2019 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Exploiting the setting of staggered adoption of the Inevitable Disclosure Doctrine (hereafter IDD) in U.S. state courts, we examine how quasi-exogenous restrictions of outside employment opportunities affect CEOs' risk preferences. IDD adoption constrains executives' ability to work for competitors, resulting in a reduction in their employment options. We expect IDD adoption to increase CEOs' risk avoidance by increasing their costs of termination and reducing the reward to risk taking. Consistent with this prediction, we find that, when making investment decisions, CEOs are less responsive, post IDD adoption, to risk-inducing incentives provided by their compensation package. The effect is more pronounced for CEOs with more outside opportunities absent the IDD, whom the IDD's restrictions are more likely to bind. Additional analyses suggest that the board adjusts compensation to overcome the reduction in risk appetite. Overall, we provide new evidence on how external labor market frictions affects CEO risk preferences and compensation.

Download or read book Does Zero Lower Bound Policy Affect Managerial Risk taking and Executive Compensation written by Yue Cai and published by . This book was released on 2016 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This study empirically examined whether the zero lower bound policy of 2008 promotes managerial risk-taking using samples of U.S. publicly traded firms. Based on the evidence documented in previous research, this policy can lead to a change in firms' managerial risk-taking and in turn result in a difference in executive compensation. By conducting empirical research, it was found that managerial risk taking increases significantly after the zero lower bound policy. In addition, firms' total executive compensation also increased significantly after the zero lower bound policy. Further analysis showed that the increase in executive compensation was caused by the partial mediation of managerial risk-taking. Moreover, robustness checks showed that the relation between zero lower bound policy and managerial risk-taking is less significant for S&P 500 firms. In addition, corporate governance moderates the relation between managerial risk-taking and executive compensation.

Download or read book Explaining Executive Pay written by Lukas Hengartner and published by Springer Science & Business Media. This book was released on 2007-12-31 with total page 224 pages. Available in PDF, EPUB and Kindle. Book excerpt: Lukas Hengartner shows that both firm complexity and managerial power are associated with higher pay levels. This suggests that top managers are paid for the complexity of their job and that more powerful top managers receive pay in excess of the level that would be optimal for shareholders.

Download or read book Managerial Risk Taking Behavior and Equity Based Compensation written by Angie Low and published by . This book was released on 2010 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: I study managers' risk-taking behavior and how it is affected by equity-based compensation. I find that in response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 6%. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives, in particular, firms with low CEO portfolio sensitivity to stock return volatility. Furthermore, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking.

Download or read book The Prevention of Excess Managerial Risk Taking written by Edward Dickersin Van Wesep and published by . This book was released on 2012 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executives with poor prior performance may be inclined to take excessive risk in the hope of meeting performance targets, in which case a compensation contract featuring severance pay can be optimal. While prior work has shown that severance can induce managers to take positive NPV risks, we show that it can also keep them from taking negative NPV risks. We find that severance is most useful in large and complex firms and that the specified severance payment can be large both in dollar terms and relative to annual pay. We also show that severance should be contingent on results: complete failure should nullify any payments. These implications from the theory accord well with the stylized facts.

Download or read book Asymmetry of CEO Compensation and the Role of Relative and Macroeconomic Shocks in Risk Taking Incentives written by Hsin-Hui Chiu and published by . This book was released on 2015 with total page 49 pages. Available in PDF, EPUB and Kindle. Book excerpt: If managers are risk-averse and compensation schemes are not directly linked to shareholder wealth, incentives to allocate effort to manage effects of relative and macroeconomic shocks may be distorted. In this paper we develop a simple model to identify factors that determine the optimal allocation of effort to manage relative and macroeconomic shocks. We then show how serial correlation in shocks, the relative variance of shocks and the ability of managers to influence the effects of shocks on shareholder wealth determine the optimal allocation of managerial effort. Thereafter, we emphasize how CEO compensation depends on performance variables distinguishing between relative and macroeconomic sources of changes in compensation. In our empirical analysis on the asymmetry of compensation in response to relative and macroeconomic shocks we use CEO's firm-related wealth in a sample of U.S. CEOs during 1993-2012. The empirical results show that macroeconomic fluctuations explain a large part of the variances of compensation and firm-related wealth. We find only weak evidence of asymmetric incentives in these two variables. Thus, if managers are risk-averse, their incentives to reduce the impact of macroeconomic fluctuations are strong and possibly excessive. We conclude that the role of macroeconomic fluctuations and the ability of the CEO to adjust operations in response to these fluctuations should be considered simultaneously when designing individual CEO compensation incentive schemes.

Download or read book Too Much Is Not Enough written by Robert W. Kolb and published by Oxford University Press. This book was released on 2012-08-02 with total page 428 pages. Available in PDF, EPUB and Kindle. Book excerpt: The scholarly literature on executive compensation is vast. As such, this literature provides an unparalleled resource for studying the interaction between the setting of incentives (or the attempted setting of incentives) and the behavior that is actually adduced. From this literature, there are several reasons for believing that one can set incentives in executive compensation with a high rate of success in guiding CEO behavior, and one might expect CEO compensation to be a textbook example of the successful use of incentives. Also, as executive compensation has been studied intensively in the academic literature, we might also expect the success of incentive compensation to be well-documented. Historically, however, this has been very far from the case. In Too Much Is Not Enough, Robert W. Kolb studies the performance of incentives in executive compensation across many dimensions of CEO performance. The book begins with an overview of incentives and unintended consequences. Then it focuses on the theory of incentives as applied to compensation generally, and as applied to executive compensation particularly. Subsequent chapters explore different facets of executive compensation and assess the evidence on how well incentive compensation performs in each arena. The book concludes with a final chapter that provides an overall assessment of the value of incentives in guiding executive behavior. In it, Kolb argues that incentive compensation for executives is so problematic and so prone to error that the social value of giving huge incentive compensation packages is likely to be negative on balance. In focusing on incentives, the book provides a much sought-after resource, for while there are a number of books on executive compensation, none focuses specifically on incentives. Given the recent fervor over executive compensation, this unique but logical perspective will garner much interest. And while the literature being considered and evaluated is technical, the book is written in a non-mathematical way accessible to any college-educated reader.

Download or read book CEO Remuneration and Bank Default Risk written by Francesco Vallascas and published by . This book was released on 2015 with total page 47 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze the impact of incentive mechanisms embedded in executive remuneration contracts on the risk choices made by bank CEOs. For a panel of US and European banks, we employ the Merton distance to default model to estimate how bonus payments and option holdings impact the level of bank default risk targeted by CEOs. We find that CEO cash bonuses reduce default risk, while stock options increase the preferred risk level. We argue that the convex payoff structure of stock options induces CEOs to shift risk to bondholders and regulators, whereas the (typically) non-convex payoffs linked to managerial bonus plans constrain managerial risk preferences. Further, we show that CEO pay promotes excess risk-taking predominantly in weaker regulatory environments and at financially distressed banks. Our results link executive compensation in the banking industry to financial stability and caution that any attempt to regulate compensation in banking needs to tie compensation practices to regulatory regimes and the riskiness of banks.