Trademark Protection and CEO Risk-taking Incentives

Using the passage of the Federal Trademark Dilution Act (FTDA) as an exogenous shock to trademark protection, we find that stronger trademark protection induces firms to increase their CEO risk-taking incentives as measured by CEO portfolio vega. The effect is greater for firms facing fiercer competition and firms with weaker corporate governance. Further analysis reveals that vega is effective in encouraging CEO risk-taking after the passage of the FTDA. Overall, our findings suggest that shareholders provide more incentives in the compensation design to motivate CEO risk-taking in response to the heightened trademark protection.

Keywords: trademark protection; managerial compensation; risk-taking incentives; innovation

JEL Classification: G30, K11, M52, O34

Suggested Citation: Suggested Citation

Chen, Tao and Chen, Yangyang and Yang, Bin and Yuan, Tao, Trademark Protection and CEO Risk-taking Incentives (September 1, 2020). Nanyang Business School Research Paper No. 22-37, Available at SSRN: https://ssrn.com/abstract=4211292 or http://dx.doi.org/10.2139/ssrn.4211292