Shareholder litigation and the risk incentive effect of executive compensation : A re-examination

Previous literature shows that securities litigation is positively impacted by management compensation with a focus on the delta, but not the vega, component of compensation. We argue that the vega, rather than the delta, component of management compensation should be associated with litigation propensity. Using a sample from 1996 to 2018, we document that securities litigation is related to option vega but not to delta. Our results are robust to alternate specifications of delta and vega, and to endogeneity concerns from reverse causality