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”.