Compensation & Risk

Compensation & Risk

By
David F. Larcker, Brian Tayan
CGRI Research Spotlight Series. Corporate Governance Research Initiative (CGRI),
2015

This Research Spotlight provides a summary of the academic literature on how equity compensation influences CEO risk taking. It reviews the evidence of:

  • The relation between stock options and CEO investment decisions
  • The relation between options and the likelihood of “extreme” outcomes
  • The incentives options create to increase market versus firm-specific risk
  • The impact that options had on the Financial Crisis of 2008
  • The relation between options and financial misreporting

This Research Spotlight expands upon issues introduced in the Quick Guide “Equity Ownership”.