Compensation & Risk

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”.