We examine whether the equity incentive heterogeneity of the executive team engenders a positive externality by curtailing stock price crash risk. Supporting this prediction, we find a negative relation between the equity incentive heterogeneity of the executive team and stock price crash risk....

How do we prevent financial institutions from taking excessive risk when the public fisc serves as their ultimate creditor? This is one of the central questions left over after the recent financial crisis and, for the past five years, there has been no shortage of proposed answers. Two of the...

Agency theory suggests the use relative performance evaluation (RPE) to filter out systematic risks from a noisy performance measure. The presence of exposure risk, i.e. if the exposure to the systematic risks moves over time, however precludes complete filtering. In the present study I first...

I investigate the consequences of executive stock option (ESO) risk incentives on risk-taking and future stock returns, conditional on past firm performance. Prior research documents a positive relation between compensation convexity (captured by “vega,” the sensitivity of CEO wealth to...

In the presence of managerial short-termism and asymmetric information about skill and effort provision, firms may opportunistically shift earnings from uncertain to more certain times. We document that firms report more negative discretionary accruals when financial markets are less certain...

Traditionally, researchers have had difficulty testing the relationship between the degree of risk or uncertainty in workers' environments and incentive pay. The authors employ Prendergast's (2002) theory that incorporates the delegation of worker authority into the principal-agent model to...

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...

Uncertainty has qualitatively different implications than risk in studying executive incentives. We study the interplay between profitability uncertainty and moral hazard, where profitability is multiplicative with the managerial effort. Investors who face greater uncertainty desire faster...

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...

Contrary to the entrenchment view of executive compensation, I find that CEOs with more control over the firm, proxied by higher equity ownership, have smaller compensation packages and are less likely to have severance contracts. Despite lower pay, these CEOs have longer tenure and their...