The usage of performance-vesting (p-v) equity awards to top executives in large U.S. companies has grown from 20 to 70 percent from 1998 to 2012. We measure the effects of p-v provisions on value, delta, and vega of equity-based compensation. We find large differences in the value of p-v awards...

This paper examines whether the risk-taking incentives induced by performance-based vesting (p-v) compensation influence bank loan contracting and credit ratings. Consistent with our risk-shifting hypothesis, we find that the p-v based compensation, as measured by the proportion of grant date...

Using data that includes specific contractual details of Relative Performance Evaluation (RPE) contracts granted to executives for 1,833 firms for the period 1998 to 2012, we develop new methods to characterize RPE awards and measure their value and incentive properties. The frequency in the use...

Panel OLS and GMM-IV estimates indicate that executives respond to the adoption of a compensation clawback provision by decreasing firm risk. The mechanisms that transmit incentives to decisions and decisions to risk appear to be more conservative investment and financial policies and preemptive...

Many of the events that trigger clawback provisions are associated with risky corporate policies and variable performance outcomes. We propose and test the hypothesis that clawback provisions motivate managers to reduce firm risk. Panel OLS, GMM-IV, and PSM models all indicate that clawback...

We examine how CEO compensation is affected by the presence of busy and overlap directors. We find that CEOs at firms with more busy directors receive greater total pay, fixed-salary and equity-linked pay and exhibit higher pay-performance (delta) and pay-risk (vega) sensitivities. Our results...

We study derivative instruments that corporate insiders use to diversify and hedge their equity ownership. Our evidence suggests that boards might allow use of these instruments in order to mitigate agency costs associated with overvalued equity and high equity-based pay. These instruments are...

We investigate the incentives that led to the rash of restated financial statements at the end of the 1990s market bubble. We find that the likelihood of a misstated financial statement increases greatly when the CEO has very sizable holdings of in-the-money stock options. Misstatements are also...

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...

If overstatements were a symptom of the agency conflict, pay-for-performance sensitivities should have increased in response to the additional penalties for misreporting imposed by SOX. Our finding of their decrease is inconsistent with the view that overstatements were an unintended consequence...