Abstract

http://ssrn.com/abstract=1787113
 
 

References (67)



 


 



The Effect of CEO’s Risk-Taking Incentives on Relationship-Specific Investments by Customers and Suppliers


Jayant R. Kale


Northeastern University

Simi Kedia


Rutgers Business School

Ryan Williams


University of Arizona - Department of Finance

October 1, 2015


Abstract:     
A firm’s customers and suppliers make relationship-specific investments (RSI) whose value reduces if the firm undertakes risky investments. We hypothesize that the risk-taking incentives in the firm CEO’s compensation will lower the RSI by firms up and down in the vertical channel. We provide significant evidence that customer/supplier RSI declines with the risk-taking incentives of the firm’s CEO. Moreover, we find that RSI is more sensitive to the CEO’s risk-taking incentives when they are more likely to increase the firm’s cash flow volatility. Our findings are robust to correcting for endogeneity and several measures for RSI and risk taking.

Number of Pages in PDF File: 50

Keywords: Product Markets, Compensation, Risk Taking, Vertical Channel, Relationship Specific Investment

JEL Classification: G30


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Date posted: March 21, 2011 ; Last revised: February 3, 2016

Suggested Citation

Kale, Jayant R. and Kedia, Simi and Williams, Ryan, The Effect of CEO’s Risk-Taking Incentives on Relationship-Specific Investments by Customers and Suppliers (October 1, 2015). Available at SSRN: http://ssrn.com/abstract=1787113 or http://dx.doi.org/10.2139/ssrn.1787113

Contact Information

Jayant Raghunath Kale
Northeastern University ( email )
Boston, MA 02115
United States

Simi Kedia (Contact Author)
Rutgers Business School ( email )
117 Levin
94 Rockafellar Road
Piscataway, NJ
United States
8484454195 (Phone)
Ryan Williams
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
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