Managerial Risk Preference and Firm Performance Volatility: New Evidence from Executive Deferred Compensation

Posted: 24 Apr 2012 Last revised: 30 Sep 2012

See all articles by Wei Cen

Wei Cen

Peking University - HSBC Business School

Date Written: March 24, 2011

Abstract

Using novel data from executive deferred compensation, this paper presents new evidence on the relationship between CEO risk preference and firm risk (the volatility of firm performance measures such as stock return, earnings and operating cash flows). My results show a negative association between the CEO risk aversion (as measured by realized performance on inside debt) and the volatility of firm market performance: Firms with risk-averse CEOs have experience less stock price volatility. I also find that firms providing deferred compensation plans have lower performance volatility. The results contribute to the inside debt literature by showing that inside debt compensation is related to lower firm risk and lower firm market value.

Keywords: inside debt, pay for performance, CEO risk, firm performance

JEL Classification: D23, G21, G33, G34, J33, K22, M52

Suggested Citation

Cen, Wei, Managerial Risk Preference and Firm Performance Volatility: New Evidence from Executive Deferred Compensation (March 24, 2011). Available at SSRN: https://ssrn.com/abstract=2045810 or http://dx.doi.org/10.2139/ssrn.2045810

Wei Cen (Contact Author)

Peking University - HSBC Business School ( email )

HSBC Business School, Peking University
University Town, Nanshan District
Shenzhen, Guangdong
China

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
733
PlumX Metrics