Influenced by their compensation plans, CEOs make their own luck through decisions that affect future firm risk. After adopting a relative performance evaluation (RPE) plan, total and idiosyncratic risk are higher, and the correlation between firm and industry performance is lower. The opposite...

This study, through empirical evidence of 3,081 US firms during the period of 1992-2009, shows a strong causal relation between different CEO compensation components and firms' investment policy and firm risk. Specifically, the proportion of CEO option-based compensation is positively and...