Abstract

http://ssrn.com/abstract=1595343
 
 

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Managerial Incentives to Take Asset Risk


Marc Chesney


University of Zurich - Swiss Banking Institute (ISB); Swiss Finance Institute

Jacob Stromberg


Swiss Finance Institute

Alexander F. Wagner


University of Zurich - Department of Banking and Finance; Swiss Finance Institute; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

September 5, 2012

Swiss Finance Institute Research Paper No. 10-18

Abstract:     
We argue that incentives to take equity risk ("equity incentives") only partially capture incentives to take asset risk ("asset incentives"). This is because leverage, while central to the theory of risk-shifting, is not explicitly considered by equity incentives. Employing measures of asset incentives that account for leverage, we nd that asset risk-taking incentives can be large compared to incentives to increase rm value. Moreover, stock holdings can induce substantial risk-taking incentives, qualifying common beliefs regarding the central role of stock options. Finally, only asset incentives explain asset risk-taking of U.S. nancial institutions before the 2007/08 crisis.

Number of Pages in PDF File: 59

Keywords: Executive compensation, nancial crisis, write-downs, corporate governance, managerial incentives, risk-taking

JEL Classification: G01, G28, G34

working papers series





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Date posted: April 25, 2010 ; Last revised: September 5, 2012

Suggested Citation

Chesney, Marc and Stromberg, Jacob and Wagner, Alexander F., Managerial Incentives to Take Asset Risk (September 5, 2012). Swiss Finance Institute Research Paper No. 10-18. Available at SSRN: http://ssrn.com/abstract=1595343 or http://dx.doi.org/10.2139/ssrn.1595343

Contact Information

Marc Chesney
University of Zurich - Swiss Banking Institute (ISB) ( email )
Plattenstrasse 14
CH-8032 Zurich, Zurich 8032
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
Jacob Stromberg
Swiss Finance Institute ( email )
Rämistrasse 71
Zürich, CH-8006
Switzerland
Alexander F. Wagner (Contact Author)
University of Zurich - Department of Banking and Finance ( email )
Plattenstrasse 14
Zürich, 8032
Switzerland
+41 44 634 3963 (Phone)
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland
HOME PAGE: http://www.alex-wagner.com

Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI) ( email )
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
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