The Impact of Risk and Monitoring on CEO Compensation
Ana M. Albuquerque
Boston University Questrom School of Business
Peter D. Wysocki
University of Miami - School of Business Administration
August 20, 2010
AAA 2011 Management Accounting Section (MAS) Meeting Paper
This paper uses a novel empirical setting to explore the association between a firm’s operational risk, managerial monitoring costs, and how managers are compensated. We investigate a sample of supplier firms that rely on a few large customers for the bulk of their revenues. We predict that supplier firms with higher customer concentration face both higher exogenous idiosyncratic risk and lower monitoring costs and, as a result, will rely less on equity-based managerial incentive compensation contracts. Our empirical results support this prediction.
Number of Pages in PDF File: 49
Keywords: CEO, Compensation, Customers, Incentives, Monitoring, Risk, Suppliers
JEL Classification: G30, D81, M40
Date posted: August 22, 2010
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