Golden Parachutes, Takeover Incentive, and Risk-Taking
48 Pages Posted: 2 Sep 2012 Last revised: 30 May 2014
Date Written: June 9, 2013
We examine the relations between golden parachutes (GPs), pay-performance sensitivity (delta), and managerial risk-taking. We find an insignificant effect of GPs, but a negative and significant interaction of GPs with delta, on risk-taking. These results are consistent with the “takeover incentive hypothesis,” an original proposition stating that GPs influence risk-taking through the incentive of a CEO with a GP to accept a takeover, as well as delta’s role in affecting the weight of the CEO’s incentive to maximize the expected takeover-associated equity portfolio wealth. The findings do not support the proposition that GPs influence risk-taking through an insurance effect.
Keywords: golden parachute, corporate governance, risk-taking, pay-performance sensitivity, delta, takeover incentive, entrenchment
JEL Classification: G30, G34
Suggested Citation: Suggested Citation