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Author: Patrick Gebhard
Publisher: GRIN Verlag
ISBN: 3656395616
Category : Business & Economics
Languages : en
Pages : 59
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Book Description
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.
Author: Patrick Gebhard
Publisher: GRIN Verlag
ISBN: 3656395616
Category : Business & Economics
Languages : en
Pages : 59
Get Book Here
Book Description
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.
Author: Angie Low
Publisher:
ISBN:
Category :
Languages : en
Pages : 42
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Book Description
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.
Author: Tanseli Savaser
Publisher:
ISBN:
Category :
Languages : en
Pages : 50
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Book Description
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.
Author: Lorenzo Casavecchia
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
In this study, we show that the option-like structure of equity-based compensation encourages managerial risk-taking and provide new evidence on the way in which CEO's risk-taking could manifest itself in a multi-segment firm. Our results show that a greater sensitivity of managerial compensation to shareholder wealth -- as proxied by CEO's portfolio vega -- leads to greater risk-taking through active capital allocation. We then analyze the impact of risk-taking on shareholder wealth and demonstrate that risk-taking is positively associated with future stock returns. Overall, this article contributes to the literature by providing evidence that equity-based compensation does actually promote the alignment of interests between shareholders and managers.
Author: Alexander Kempf
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Douglas L. Kruse
Publisher: University of Chicago Press
ISBN: 0226056961
Category : Business & Economics
Languages : en
Pages : 433
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Book Description
The historical relationship between capital and labor has evolved in the past few decades. One particularly noteworthy development is the rise of shared capitalism, a system in which workers have become partial owners of their firms and thus, in effect, both employees and stockholders. Profit sharing arrangements and gain-sharing bonuses, which tie compensation directly to a firm’s performance, also reflect this new attitude toward labor. Shared Capitalism at Work analyzes the effects of this trend on workers and firms. The contributors focus on four main areas: the fraction of firms that participate in shared capitalism programs in the United States and abroad, the factors that enable these firms to overcome classic free rider and risk problems, the effect of shared capitalism on firm performance, and the impact of shared capitalism on worker well-being. This volume provides essential studies for understanding the increasingly important role of shared capitalism in the modern workplace.
Author: Wayne R. Guay
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
To control risk-related stockholder/manager agency conflicts effectively, equity holders are expected to manage, in addition to the pay-performance slope, the convexity of the relation between firm performance and managers' wealth. I examine the stock-based compensation of 278 corporate CEOs and find stock options play an economically significant role in increasing the convexity of the wealth-performance relation. The magnitude of the convexity provided by common stock is several orders of magnitude lower than that of stock options and of little economic importance for most CEOs in the sample. In cross-sectional tests, after controlling for the slope of the pay-performance relation, convexity is positively related to the proportion of growth options in firms' investment opportunity sets. This is consistent with firms providing managers with incentives to take risky projects when the potential loss from underinvestment in valuable risk projects is greatest. Convexity is also found to be negatively related to financial leverage and positively related to firm size. This result supports extant risk-management theory, and is consistent with firms providing managers with lower risk- taking incentives when the value created from hedging is likely to be greatest.
Author: Jaksa Cvitanic
Publisher:
ISBN:
Category :
Languages : en
Pages : 23
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Book Description
When the compensation risk can be hedged away completely, the manager will try to maximize the market value of the compensation. When the risk can be hedged partially, numerical examples for a CARA manager illustrate how incentive effects depend on the relative size of systematic and specific risk premia of the output and of the hedging asset. When the specific risk can be modified, higher specific risk premium leads to more incentive contracts. In most cases call and put options induce higher risk taking than shares, but put options may induce lowering of the specific risk. The hedging manager may be less aggressive than the non-hedging manager when the risk premium is low, or when modifying specific risk while being compensated by put options.
Author: Rachel M. Hayes
Publisher:
ISBN:
Category :
Languages : en
Pages : 59
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Book Description
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.
Author: Bonnie R. Quillin
Publisher:
ISBN:
Category : Executives
Languages : en
Pages : 97
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Book Description
Using a variety of research methods, prior empirical research finds that executive compensation influences the behavior of managers, particularly with decisions involving risk. These studies show that, when executive compensation is more sensitive to stock price volatility, firms implement riskier investment and financial policies and take more aggressive positions in financial and tax reporting. The sensitivity of executive compensation to stock price volatility is largely due to stock option compensation. Prior studies provide evidence that companies reduced the stock option grants to executives following the introduction of the Statement of Financial Accounting Standard 123R - Share-Based Payment (SFAS 123R). The reduced stock option grants lead to executive compensation being less sensitive to stock price volatility. Because SFAS 123R is unrelated to a manager's inherent risk aversion, this paper uses the introduction of SFAS 123R as a natural experiment to further explore the relationship between executive compensation and managerial risk taking, in the form of aggressive positions taken in financial and tax reporting. This paper's focus on changes in corporate tax aggressiveness and financial reporting aggressiveness complements the work of Hayes et al. (2012), Cohen et al. (2010), Chava and Purnanandam (2010), and Bakke et al. (2016), which examine changes in the riskiness of corporate financing and investment policies following SFAS 123R. I fail to find evidence that firms affected by SFAS 123R have a more pronounced decline in corporate tax or financial reporting aggressiveness following SFAS 123R than firms not affected by SFAS 123R. These findings are consistent with Cohen et al. (2009) and Hayes et al. (2012) who examines changes in vega following SFAS 123R and the riskiness of firms' investment and financing policies (research and development, capital investments, leverage, and acquisitions). Hayes et al. (2002) and Cohen et al. (2010) fail to find consistent evidence that managerial risk taking decreases following SFAS 123R. These findings are inconsistent with Chava and Purnanandam (2010) and Bakke et al. (2016) who examine changes in vega following SFAS 123R and the association with corporate financial policies (the former considers book leverage and debt; the latter, corporate hedging in the oil and gas industry). Chava and Purnanandam (2010) and Bakke et al. (2016) find evidence that managerial risk taking decreases following SFAS 123R. The lack of evidence of decreased aggressiveness in tax and financial reporting in my study add to the mixed results from other studies using SFAS 123R as a natural experiment to evaluate the relation between vega and aggressive corporate financing and risk policies. As concluded by Hayes et al. (2012), understanding the effects of vega on managerial risk taking continues to be a challenge for empirical research.
