This paper tests the proposition that higher tournament incentives will result in greater risk taking by senior managers in order to increase their chance of promotion to the rank of CEO. Measuring tournament incentives as the pay gap between the CEO and the next layer of senior managers, we...

This paper builds on Rosen (1981) and Hvide (2002) to provide a simple framework that elucidates the nature of incentives in the tournaments among top executives in both the external managerial labor market for the top executive positions in other companies and within the executives' own firm...

Using the compensation gap between a CEO and the second-highest-paid CEO in the same Metropolitan Statistical Area (MSA) as a proxy for local tournament incentives, I document a positive relation between local tournament incentives and firm risk. Specifically, CEOs who face higher local...

We model and empirically assess industry tournament incentives for CEOs. The measures we develop for the tournament prize derive from the compensation gap between the CEO at her firm and the highest-paid CEO among similar competing firms. The model predicts that firm performance and risk...

This study analyzes how promotion-based tournament incentives for non-CEO senior executives affect corporate innovation. We measure tournament incentives using the pay gap between a CEO and the next layer of senior executives. We find that tournament incentives are positively related to...

We provide new evidence that equity incentives can have perverse effects on firm value. Conditioning the relationship between chief executive officer (CEO) incentives and the risk exposure generated by corporate policy decisions on how risk is expected to affect firm value, we find that delta...

Traditional finance theory suggests that riskier investments should yield higher returns. Challenging this notion, anecdotal and empirical evidence suggests that highly-incented managers may take on excessive risk, leading to greater losses, while other theoretical research argues that high...

Using a news-based index of aggregate policy uncertainty in the US economy, we document a strong negative relation between policy uncertainty and corporate risk-taking. We show that high levels of policy uncertainty are associated with significantly lower future stock return volatility at the...

Using the pay gap between a firm’s CEO and the highest-paid CEO among similar competing firms to conceptualize the prize of winning external promotion tournaments, we document a positive relationship between external tournament incentives (ETIs) and IPO underpricing – a proxy of the cost of...

This article presents a systematic review of the theoretical and empirical literature on option grants and managerial risk taking. One of the objectives is the motivation of further research on the topic. Risk-averse managers hold less diversified portfolios and, thus, tend to take less risk...