1,049
Views
6
CrossRef citations to date
0
Altmetric
Original Articles

CEO Contract Design Regulation and Risk-Taking

, &
Pages 685-725 | Received 27 Aug 2013, Accepted 23 Jun 2015, Published online: 04 Sep 2015

References

  • Adams, R. B., Almeida, H., & Ferreira, D. (2005). Powerful CEOs and their impact on corporate performance. Review of Financial Studies, 18(4), 1403–1432. doi:10.1093/rfs/hhi030
  • Aggarwal, R., Erel, I., Stulz, R. M., & Williamson, R. (2009). Differences in governance practices between U.S. and foreign firms: Measurement, causes, and consequences. Review of Financial Studies, 22(8), 3131–3169. doi:10.1093/rfs/hhn107
  • Agrawal, A., & Mandelker, G. N. (1987). Managerial incentives and corporate investment and financing decisions. The Journal of Finance, 42(4), 823–837. doi:10.1111/j.1540-6261.1987.tb03914.x
  • Angrist, J. D., & Pischke, J.-S. (2009). Mostly harmless economics: An empiricist's companion. Princeton, NJ: Princeton University Press.
  • Antia, M., Pantzalis, C., & Park, J. C. (2010). CEO decision horizon and firm performance: An empirical investigation. Journal of Corporate Finance, 16(3), 288–301. doi:10.1016/j.jcorpfin.2010.01.005
  • Armstrong, C. S., & Vashishtha, R. (2012). Executive stock options, differential risk-taking incentives, and firm value. Journal of Financial Economics, 104(1), 70–88. doi:10.1016/j.jfineco.2011.11.005
  • Bali, T. G. (2008). The intertemporal relation between expected returns and risk. Journal of Financial Economics, 87(1), 101–131. doi:10.1016/j.jfineco.2007.03.002
  • Bebchuk, L. A., & Cohen, A. (2005). The costs of entrenched boards. Journal of Financial Economics, 78(2), 409–433. doi:10.1016/j.jfineco.2004.12.006
  • Bebchuk, L. A., Cohen, A., & Ferrell, A. (2009). What matters in corporate governance? Review of Financial Studies, 22(2), 783–827. doi:10.1093/rfs/hhn099
  • Bebchuk, L. A., & Fried, J. M. (2004). Pay without performance: The unfulfilled promise of executive compensation. Cambridge, MA: Harvard University Press.
  • Bebchuk, L. A., & Fried, J. M. (2005). Pay without performance: Overview of the issues. Journal of Applied Corporate Finance, 17(4), 8–23. doi:10.1111/j.1745-6622.2005.00056.x
  • Bertrand, M., Duflo, E., & Mullainathan, S. (2004). How much should we trust differences-in-differences estimates? The Quarterly Journal of Economics, 119(1), 249–275. doi:10.1162/003355304772839588
  • Bettis, C., Bizjak, J. M., Coles, J. L., & Kalpathy, S. (2010). Stock and option grants with performance-based vesting provisions. Review of Financial Studies, 23(10), 3849–3888. doi:10.1093/rfs/hhq060
  • Bettis, J. C., Bizjak, J. M., Coles, J. L., & Kalpathy, S. (2013). Performance-vesting provisions in executive compensation. Paris December 2014 Finance Meeting EUROFIDAI – AFFI Paper. doi:10.2139/ssrn.2289566
  • Brandt, M. W., & Kang, Q. (2004). On the relationship between the conditional mean and volatility of stock returns: A latent VAR approach. Journal of Financial Economics, 72. doi:10.1016/j.jfineco.2002.06.001
  • Brennan, M. J., Wang, A. W., & Xia, Y. (2004). Estimation and test of a simple model of intertemporal capital asset pricing. Journal of Finance, 59(4), 1743–1776. doi:10.1111/j.1540-6261.2004.00678.x
  • Brisley, N. (2006). Executive stock options: Early exercise provisions and risk-taking incentives. The Journal of Finance, 61(5), 2487–2509. doi:10.1111/j.1540-6261.2006.01064.x
  • Brown, L. D., & Caylor, M. L. (2006). Corporate governance and firm valuation. Journal of Accounting and Public Policy, 25(4), 409–434. doi:10.1016/j.jaccpubpol.2006.05.005
  • Bushman, R. M., & Smith, A. J. (2001). Financial accounting information and corporate governance. Journal of Accounting and Economics, 32(1–3), 237–333. doi:10.1016/S0165-4101(01)00027-1
  • Cadman, B. D., Rusticus, T. O., & Sunder, J. (2013). Stock option grant vesting terms: Economic and financial reporting determinants. Review of Accounting Studies, 18(4), 1159–1190. doi:10.1007/s11142-012-9215-6
  • Cameron, A. C., Gelbach, J. B., & Miller, D. L. (2008). Bootstrap-based improvements for inference with clustered errors. Review of Economics and Statistics, 90(3), 414–427. doi:10.1162/rest.90.3.414
  • Card, D. (1992). Using regional variation in wages to measure the effects of the federal minimum wage. Industrial and Labor Relations Review, 46(1), 22–37. doi:10.2307/2524736
  • Carpenter, J. N. (2000). Does option compensation increase managerial risk appetite? The Journal of Finance, 55(5), 2311–2331. doi:10.1111/0022-1082.00288
  • Chan, L. H., Chen, K. C. W., Chen, T.-Y., & Yu, Y. (2012). The effects of firm-initiated clawback provisions on earnings quality and auditor behavior. Journal of Accounting and Economics, 54(2–3), 180–196. doi:10.1016/j.jacceco.2012.05.001
  • Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of Financial Economics, 79(2), 431–468. doi:10.1016/j.jfineco.2004.09.004
  • Commission of the European Communities. (2009a). 2009/384/EC: Commission recommendation on remuneration policies in the financial services sector (C(2009) 3159). Official Journal of the European Union, (L 120), 22–27.
  • Commission of the European Communities. (2009b). 2009/385/EC: Commission recommendation complementing recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remuneration of directors of listed companies C(2009) 3177. Official Journal of the European Union, (L 120), 28–31.
  • Commission of the European Communities. (2010a). COM(2010) 285: Report on the application by member states of the EU of the commission 2009/385/EC recommendation (2009 recommendation on directors’ remuneration) complementing recommendations 2004/913/EC and 2005/162/EC as regards the regime for the remun. Brussels.
  • Commission of the European Communities. (2010b). SEC(2010) 670: Commission staff working document – Report on the application by member states of the EU of the commission 2009/385/EC recommendation (2009 recommendation on directors’ remuneration) complementing recommendations 2004/913/EC and 2005/162/EC. Brussels.
  • Conyon, M. J., Fernandes, N., Ferreira, M. A., Matos, P., & Murphy, K. J. (2013). The executive compensation controversy: A transatlantic analysis. In T. Boeri, C. Lucifora, & K. J. Murphy (Eds.), Executive remuneration and employee performance-related pay – a transatlantic perspective (1st ed., pp. 11–122). Oxford: Oxford University Press. Retrieved from http://digitalcommons.ilr.cornell.edu/ics/5/
  • De Angelis, D., & Grinstein, Y. (2012, August 17). Pay for the right performance. Johnson School Research Paper Series No. 03–2011. doi:10.2139/ssrn.1571182
  • De Franco, G., Hope, O.-K., & Larocque, S. (2013). The effect of disclosure on the pay-performance relation. Journal of Accounting and Public Policy, 32(5), 319–341. doi:10.1016/j.jaccpubpol.2013.06.007
  • DeFusco, R. A., Johnson, R. R., & Zorn, T. S. (1990). The effect of executive stock option plans on stockholders and bondholders. The Journal of Finance, 45(2), 617–627. doi:10.1111/j.1540-6261.1990.tb03707.x
  • Ederhof, M. (2010). Discretion in bonus plans. The Accounting Review, 85(6), 1921–1949. doi:10.2308/accr.2010.85.6.1921
  • European Corporate Governance Institute. (2014). Index of codes. Retrieved from http://www.ecgi.org/codes/all_codes.php
  • Ferrarini, G., Moloney, N., & Ungureanu, M. C. (2009). Understanding directors’ pay in Europe: A comparative and empirical analysis (Law Working Paper No. 126). European Corporate Governance Institute. doi:10.2139/ssrn.1418463
  • Fu, F. (2009). Idiosyncratic risk and the cross-section of expected stock returns. Journal of Financial Economics, 91(1), 24–37. doi:10.1016/j.jfineco.2008.02.003
  • Fudenberg, D., Holmstrom, B., & Milgrom, P. (1990). Short-term contracts and long-term agency relationships. Journal of Economic Theory, 51(1), 1–31. doi:10.1016/0022-0531(90)90048-O
  • Gaver, J. J., Gaver, K. M., & Austin, J. R. (1995). Additional evidence on bonus plans and income management. Journal of Accounting and Economics, 19(1), 3–28. doi:10.1016/0165-4101(94)00358-C
  • Gompers, P. A., Ishii, J. L., & Metrick, A. (2003). Corporate governance and equity prices. The Quarterly Journal of Economics, 118(1), 107–156. doi:10.1162/00335530360535162
  • Gormley, T. A., & Matsa, D. A. (2014). Common errors: How to (and not to) control for unobserved heterogeneity. Review of Financial Studies, 27(2), 617–661. doi:10.1093/rfs/hht047
  • Guay, W. R. (1999). The sensitivity of CEO wealth to equity risk: An analysis of the magnitude and determinants. Journal of Financial Economics, 53(1), 43–71. doi:10.1016/S0304-405X(99)00016-1
  • Haugen, R. A., & Senbet, L. W. (1981). Resolving the agency problems of external capital through options. The Journal of Finance, 36(3), 629–647. doi:10.1111/j.1540-6261.1981.tb00649.x
  • Healy, P. M. (1985). The effect of bonus schemes on accounting decisions. Journal of Accounting and Economics, 7(1–3), 85–107. doi:10.1016/0165-4101(85)90029-1
  • Healy, P. M., & Palepu, K. G. (2001). Information asymmetry, corporate disclosure, and the capital markets: A review of the empirical disclosure literature. Journal of Accounting and Economics, 31(1–3), 405–440. doi:10.1016/S0165-4101(01)00018-0
  • Holthausen, R. W., Larcker, D. F., & Sloan, R. G. (1995). Annual bonus schemes and the manipulation of earnings. Journal of Accounting and Economics, 19(1), 29–74. doi:10.1016/0165-4101(94)00376-G
  • Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3, 305–360. doi:10.1016/0304-405X(76)90026-X
  • Jobson, J. D., & Korkie, B. M. (1981). Performance hypothesis testing with the Sharpe and Treynor measures. The Journal of Finance, 36(4), 889–908. doi:10.2307/2327554
  • Kim, E. H., & Lu, Y. (2011). CEO ownership, external governance, and risk-taking. Journal of Financial Economics, 102(2), 272–292. doi:10.1016/j.jfineco.2011.07.002
  • Kuang, Y. F. (2007). Incentive effects of performance-vested stock options. Tilburg: CentER, Center for Economic Research.
  • Kuang, Y. F. (2008). Performance-vested stock options and earnings management. Journal of Business Finance & Accounting, 35(9–10), 1049–1078. doi:10.1111/j.1468-5957.2008.02104.x
  • Lambert, R. A., Larcker, D. F., & Verrecchia, R. E. (1991). Portfolio considerations in valuing executive compensation. Journal of Accounting Research, 29(1), 129–149. doi:10.2307/2491032
  • León, Á., Nave, J. M., & Rubio, G. (2007). The relationship between risk and expected return in Europe. Journal of Banking & Finance, 31(2), 495–512. doi:10.1016/j.jbankfin.2006.07.011
  • Lewellen, K. (2006). Financing decisions when managers are risk averse. Journal of Financial Economics, 82(3), 551–589. doi:10.1016/j.jfineco.2005.06.009
  • Lie, E. (2005). On the timing of CEO stock option awards. Management Science, 51(5), 802–812. doi:10.1287/mnsc.1050.0365
  • Low, A. (2009). Managerial risk-taking behavior and equity-based compensation. Journal of Financial Economics, 92(3), 470–490. doi:10.1016/j.jfineco.2008.05.004
  • Merton, R. C. (1980). On estimating the expected return on the market. Journal of Financial Economics, 8(4), 323–361. doi:10.1016/0304-405X(80)90007-0
  • Morse, A., Nanda, V., & Seru, A. (2011). Are incentive contracts rigged by powerful CEOs? Journal of Finance, 66(5), 1779–1821. doi:10.1111/j.1540-6261.2011.01687.x
  • Murphy, K. J. (2001). Performance standards in incentive contracts. Journal of Accounting and Economics, 30(3), 245–278. doi:10.1016/S0165-4101(01)00013-1
  • Murphy, K. J., & Jensen, M. C. (2011). CEO bonus plans: And how to fix them (Harvard Business School NOM Unit Working Paper 12–022, Marshall School of Business Working Paper No. FBE 02–11). doi:10.2139/ssrn.1935654
  • Pástor, Ľ., Sinha, M., & Swaminathan, B. (2008). Estimating the intertemporal risk-return tradeoff using the implied cost of capital. Journal of Finance, 63(6), 2859–2897. doi:10.1111/j.1540-6261.2008.01415.x
  • Rajgopal, S., & Shevlin, T. (2002). Empirical evidence on the relation between stock option compensation and risk taking. Journal of Accounting and Economics, 33(2), 145–171. doi:10.1016/S0165-4101(02)00042-3
  • Schrand, C., & Unal, H. (1998). Hedging and coordinated risk management: Evidence from thrift conversions. The Journal of Finance, 53(3), 979–1013. doi:10.1111/0022-1082.00041
  • Sharpe, W. F. (1966). Mutual fund performance. The Journal of Business, 39(1, Part 2: Supplement on Security Prices), 119–138. doi: 10.1086/294846
  • Sharpe, W. F. (1994). The Sharpe ratio. The Journal of Portfolio Management, 21(1), 49–58. doi:10.3905/jpm.1994.409501
  • Smith, C. W., & Stulz, R. M. (1985). The determinants of firms’ hedging policies. The Journal of Financial and Quantitative Analysis, 20(4), 391–405. doi:10.2307/2330757
  • Tufano, P. (1996). Who manages risk? An empirical examination of risk management practices in the gold mining industry. The Journal of Finance, 51(4), 1097–1137. doi:10.1111/j.1540-6261.1996.tb04064.x
  • Warther, V. A. (1998). Board effectiveness and board dissent: A model of the board's relationship to management and shareholders. Journal of Corporate Finance, 4(1), 53–70. doi:10.1016/S0929-1199(97)00009-6
  • Watts, R. L., & Zimmerman, J. L. (1986). Positive accounting theory. Edgewood Cliffs, NJ: Prentice-Hall.
  • Yermack, D. (1997). Good timing: CEO stock option awards and company news announcements. The Journal of Finance, 52(2), 449–476. doi:10.1111/j.1540-6261.1997.tb04809.x

Reprints and Corporate Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

To request a reprint or corporate permissions for this article, please click on the relevant link below:

Academic Permissions

Please note: Selecting permissions does not provide access to the full text of the article, please see our help page How do I view content?

Obtain permissions instantly via Rightslink by clicking on the button below:

If you are unable to obtain permissions via Rightslink, please complete and submit this Permissions form. For more information, please visit our Permissions help page.