Download or read book Executive Stock Options and Managerial Risk taking Incentives written by Troels Boysen and published by . This book was released on 2009 with total page 105 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Managerial Risk Taking Incentives and Executive Stock Option Repricing written by Daniel A. Rogers and published by . This book was released on 2009 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Because options provide incentives to increase both risk and stock price, firms must realize that as options go underwater, executives might face incentives to invest in risky, negative NPV projects. Repricing may alleviate such incentives. I examine repricing activity by firms in the U.S. gaming industry and find that risk-taking incentives from options are positively related to the incidence of executive option repricing. The results support the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.

Download or read book Managerial Risk Taking Incentives and Executive Stock Option Repricing written by Daniel A. Rogers and published by . This book was released on 2005 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study, I examine the relation between managerial incentives from holdings of company stock and options and stock option repricing. Specifically, given that options provide both incentives to increase risk as well as stock price, firms must be cognizant that executives may increasingly face incentives to invest in risky, negative NPV projects, as options go underwater. Repricing may serve as a mechanism to alleviate such incentives. The study examines repricing activity by firms in the U.S. gaming industry during 1993-1998. I find that, in both firm-level and executive-level analyses, risk-taking incentives from options are positively related to the incidence of executive option repricing. The results are supportive of the hypothesis that repricing assists firms in alleviating excessive risk-taking incentives of senior management.

Download or read book Executive Stock Options and Risk taking written by Wenli Huang and published by . This book was released on 2005 with total page 158 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Share based pay and its effects on managerial risk taking written by Patrick Gebhard and published by GRIN Verlag. This book was released on 2013-03-21 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: Bachelor Thesis from the year 2013 in the subject Business economics - Business Management, Corporate Governance, Technical University of Munich, language: English, abstract: This thesis studies the effects of share-based pay on managerial risk-taking. At first, the relationship between managers and shareholders as predicted by agency theory is described to motivate the use of share-based pay. Then, the influence of manager-specific attributes and compensation design on the risk premium and the risk incentives is discussed Theoretical and empirical research findings are presented and discussed to gain insights into the determinants and effects of stock-based compensation. Last but not least, a descriptive analysis of the payperformance sensitivities of the stock and option portfolios of board members in the German DAX and MDAX in the period of 2006 to 2010 is conducted. Zusammenfassung Die vorliegende Arbeit untersucht die Auswirkungen von aktienkursorientierter Vergütung auf das Risikoverhalten von Managern. Basierend auf den Vorhersagen des Principal- Agenten-Modells wird zunächst die Beziehung zwischen Aktionären und dem Vorstand beschrieben, um die Verwendung aktienkursorientierter Vergütung zu begründen. Darauffolgend wird der Einfluss von managerspezifischen Eigenschaften und der Vergütungsstruktur auf die Risikoprämie und die Risikoanreize dargelegt. Zur Identifizierung der Determinanten und Konsequenzen von aktienkursorientierte Vergütung werden theoretische und empirische Forschungsergebnisse präsentiert und diskutiert. Abschließend wird eine deskriptive Analyse der Unternehmensleistungssensitivitäten von Aktien- und Aktienoptionsportfolios von Vorständen aus DAX und MDAX in der Periode von 2006 bis 2010 durchgeführt.

Download or read book The Impact of Executive Stock Options on Managerial Risk Taking written by Yenn-Ru Chen and published by . This book was released on 2003 with total page 310 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Stock Options and Managerial Incentives for Risk Taking written by Rachel M. Hayes and published by . This book was released on 2015 with total page 59 pages. Available in PDF, EPUB and Kindle. Book excerpt: We provide new evidence on the relationship between option-based compensation and risktaking behavior by exploiting the change in the accounting treatment of stock options following the adoption of FAS 123R in 2005. The implementation of FAS 123R represents an exogenous change in the accounting benefits of stock options that has no effect on the economic costs and benefits of options for providing managerial incentives. Our results do not support the view that the convexity inherent in option-based compensation is used to reduce risk-related agency problems between managers and shareholders. We show that all firms dramatically reduce their usage of stock options (convexity) after the adoption of FAS 123R and that the decline in option use is strongly associated with a proxy for accounting costs. There is little evidence that the decline in option usage following the accounting change results in less risky investment and financial policies.Internet Appendix attached in the end.

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 Option Incentives Leverage and Risk Taking written by Kyonghee Kim and published by . This book was released on 2018 with total page 51 pages. Available in PDF, EPUB and Kindle. Book excerpt: While extensive research examines the relation between option incentives in executive compensation and risk-taking by managers, the impact of capital structure on this relationship has received little empirical attention. Prior work suggests that heightened managerial career concerns arising from financial risk and monitoring by debt holders will result in leverage having a dampening effect on the relation between managerial risk-taking and equity-linked incentives. We empirically evaluate this contention and find leverage significantly weakens the positive relation between option incentives in flow compensation and managerial risk-taking. These results hold after accounting for the endogeneity of both, firm leverage and incentive compensation decisions. The attenuating effect holds for both short-term and long-term components of debt but is stronger for the short-term component. Overall, the results highlight the influence of capital structure on the relationship between option incentives and managerial risk-taking.

Download or read book Executive Stock Options written by Neil Brisley and published by . This book was released on 2008 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Traditional executive stock option plans allow fixed numbers of options to vest periodically, independent of stock price performance. Because such options may climb deep in-the-money long before the manager can exercise them, they can exacerbate risk aversion in project selection. Making the proportion of options that vest a gradually increasing function of the stock price can ensure that appropriate numbers of options are retained while they provide risk-taking incentives, but are exercised once they have lost their convexity. Progressive performance vesting can allow the firm more efficiently to rebalance the manager's risk-taking incentives.

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 Executive Stock Options and Leverage written by Lee W. Sanning and published by . This book was released on 2003 with total page 41 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive stock options as a form of managerial compensation have come under intense scrutiny in recent months. Agency theory has held that options granted to executives should resolve some conflicts between managers and stockholders (Jensen and Meckling, 1976, and Haugen and Senbet, 1981). Yet recent events highlight the additional and perverse incentives that executive stock options can create. The role that executive options may have played in the collapse of firms like Enron is currently being debated in the popular press as well as by legislators and regulatory officials. Testifying before congress, Alan Greenspan recently said quot;there has been a severance, in my judgment, of the interests of the chief executive officer in many corporations from those of the shareholdersquot; (February 27, 2002). This severance can lead to risk taking by the corporate manager, beyond that preferred by the shareholders. One such type of risk taking is the increased use of financial leverage. Prior empirical research documents a positive contemporaneous relationships between executive options and leverage. These studies argue that executive options induce risk taking on the part of the manager and so interpret this finding as an indication that higher option grants cause higher leverage. I explicitly test for a causal relationship between executive options and leverage. I find that executive options cause financial risk taking when there is low institutional monitoring (ownership). However, for high institutional ownership, I find that this is not the case. Rather, following increases in firm risk (leverage), managers are granted additional stock options, consistent with optimal contracting and the empirical predictions of Choe (2001) and, more generally, the asset substitution hypothesis of Meyers (1977). Taken together, these results suggest that for some firms, the use of executive option may be efficient from the standpoint of shareholders.

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 Stock Options written by Sharon Hannes and published by . This book was released on 2017 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: Executive compensation has undergone a radical shift in the United States over the last two decades, from a cash-based system to a stock-based system. This shift, which was intended to improve firm performance, is often said to have two major shortcomings: it drives managers to engage in manipulative practices, and it generates excessive risk taking. Some scholars consider these problems to be so severe that they blame the former for the wave of Enron-style fraud cases in 2001 and 2002 and the latter for the 2007 to 2010 financial crisis. Interestingly, to date, no one has investigated the interaction between these two types of adverse incentives for manipulation and risk taking. This Article seeks to fill this void.The bottom line of this Article's analysis is that regulators should always couple anti-fraud measures with risk-restraining measures. This policy was not espoused in recent history: the regulation enacted in the United States in the wake of the Enron crisis imposed severe anti-fraud measures, yet these were only coupled with risk-restraining measures in 2010, after another mega-crisis occurred. We show here that managers compensated in stock options and similar devices face a tradeoff between these two undesirable courses of action-manipulation and excessive risk taking-both of which generate benefits for managers at the expense of shareholders. In other words, greater manipulation could, remarkably, restrain excessive risk taking. Part of the explanation for this outcome is, in intuitive terms, that a manipulative manager will not want to jeopardize the fruits of her manipulative wrongdoing by taking on too much risk. Therefore, when regulation improves disclosure and impedes manipulation, risk taking may erupt.

Download or read book Differential Risk Taking Implications of Performance Incentives from Stock and Stock Option Holdings written by Tanseli Savaser and published by . This book was released on 2016 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we study the risk taking implications of managerial pay-for-performance incentives (delta). The extant empirical literature is built on the presumption that each unit of delta has an equal risk inducing effect regardless of its source. Instead, following the predictions of the principal-agent models of executive compensation, we differentiate between performance incentives from stock and option holdings. We show that while option delta is positively associated with firm riskiness, stock delta does not have a significant effect on risk taking. Consequently, the relationship between the total value of pay-for-performance incentives and firm risk strengthens as the relative contribution from option holdings increases. Our findings contribute to the debate on the executive pay reforms, stressing the need to consider the composition of stock-based pay when designing compensation packages to provide appropriate performance and risk incentives to the executives.

Download or read book Essays on Corporate Risk Governance written by Mr. Gaizka Ormazabal Sanchez and published by Stanford University. This book was released on 2011 with total page 185 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation comprises three papers on the governance of corporate risk: 1. The first paper investigates the role of organizational structures aimed at monitoring corporate risk. Proponents of risk-related governance structures, such as risk committees or Enterprise Risk Management (ERM) programs, assert that risk monitoring adds value by ensuring that corporate risks are managed. An alternative view is that such governance structures are nothing more than window-dressing created in response to regulatory or public pressure. Consistent with the former view, I find that, in the period between 2000 and 2006, firms with more observable risk oversight structures exhibit lower equity and credit risk than firms with fewer or no observable risk oversight structures. I also provide evidence that firms with more observable risk oversight structures experienced higher returns during the worst days of the 2007-2008 financial crisis and were less susceptible to market fluctuations than firms with fewer or no observable risk oversight structures. Finally, I find that firms without observable risk oversight structures experienced higher abnormal returns to recent legislative events relating to risk management than firms with observable risk oversight structures. 2. The most common empirical measure of managerial risk-taking incentives is equity portfolio vega (Vega), which is measured as the dollar change in a manager's equity portfolio for a 0.01 change in the standard deviation of stock returns. However, Vega exhibits at least three undesirable features. First, Vega is expressed as a dollar change. This implicitly assumes that managers with identical Vega have the same incentives regardless of differences in their total equity and other wealth. Second, the small change in the standard deviation of returns used to calculate Vega (i.e., 0.01) yields a very local approximation of managerial risk-taking incentives. If an executive's expected payoff is highly nonlinear over the range of potential stock price and volatility outcomes, a local measure of incentives is unlikely to provide a valid assessment of managerial incentives. Third, Vega is measured as the partial derivative of the manager's equity portfolio with respect to return volatility. This computation does not consider that this partial derivative also varies with changes in stock price. The second paper develops and tests a new measure of managerial risk-taking equity incentives that adjusts for differences in managerial wealth, considers more global changes in price and volatility, and explicitly considers the impact of stock price and volatility changes. We find that our new measure exhibits higher explanatory power and is more robust to model specification than Vegafor explaining a wide range of measures of risk-taking behavior. 3. The third paper examines the relation between shareholder monitoring and managerial risk-taking incentives. We develop a stylized model to show that shareholder monitoring mitigates the effect of contractual risk-taking incentives on the manager's actions. Consistent with the model, we find empirically that the positive association between the CEO's contractual risk-taking incentives and risk-taking behavior decreases with the level of shareholder monitoring. Furthermore, consistent with the board anticipating and optimally responding to shareholder monitoring, boards of firms exposed to more intense monitoring design compensation contracts that provide higher incentives to take risks. Overall, our results suggest that, when evaluating risk-taking incentives provided by a compensation contract, it is important to account for the firm's monitoring environment.

Download or read book Executive Stock Options written by Neil Brisley and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: