Firm Risk Taking versus CEO Diversification: Evidence from Outsourcing Firms

52 Pages Posted: 3 Dec 2012

See all articles by S. Katie Moon

S. Katie Moon

University of Colorado at Boulder - Leeds School of Business

Date Written: November 1, 2012

Abstract

I examine CEO compensation in outsourcing firms, using a new database of purchase obligations from firm 10-Ks. I find that the intensity of outsourcing can significantly explain the variations in CEO compensation; the more the firms do outsourcing, the more they pay to their CEOs. Outsourcing firms promote managerial risk-taking by using proportionally more equity-based compensation. However, they also need to compensate additionally their CEOs for the higher risk exposure to the firms' increased total risks. I show that outsourcing firms determine their compensation level and structure based on this optimal trade-off.

Keywords: Outsourcing, Risk taking, CEO compensation

JEL Classification: G31, J33, L23, O32

Suggested Citation

Moon, Katie, Firm Risk Taking versus CEO Diversification: Evidence from Outsourcing Firms (November 1, 2012). Available at SSRN: https://ssrn.com/abstract=2184323 or http://dx.doi.org/10.2139/ssrn.2184323

Katie Moon (Contact Author)

University of Colorado at Boulder - Leeds School of Business ( email )

Boulder, CO 80309-0419
United States

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