Abstract

https://ssrn.com/abstract=2207026
 
 

References (31)



 
 

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How Do Quasi-Random Option Grants Affect CEO Risk-Taking?


Kelly Shue


University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Richard R. Townsend


University of California, San Diego (UCSD) - Rady School of Management

January 10, 2017

Journal of Finance, Forthcoming
Chicago Booth Research Paper No. 13-03
Fama-Miller Working Paper

Abstract:     
We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multi- year compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 2.8-4.2 percent increase in equity volatility. This increase in risk is driven largely by increased leverage.

Number of Pages in PDF File: 52

Keywords: Executive compensation, Incentives, Risk-taking, Pay-for-performance

JEL Classification: M52, J33, G32, G34


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Date posted: February 6, 2013 ; Last revised: January 11, 2017

Suggested Citation

Shue, Kelly and Townsend, Richard R., How Do Quasi-Random Option Grants Affect CEO Risk-Taking? (January 10, 2017). Journal of Finance, Forthcoming; Chicago Booth Research Paper No. 13-03; Fama-Miller Working Paper. Available at SSRN: https://ssrn.com/abstract=2207026 or http://dx.doi.org/10.2139/ssrn.2207026

Contact Information

Kelly Shue (Contact Author)
University of Chicago - Booth School of Business ( email )
5807 S Woodlawn Avenue
Chicago, IL 60637
United States
HOME PAGE: http://https://sites.google.com/site/kellyshue/

Chicago Booth School of Business Logo

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Richard R. Townsend
University of California, San Diego (UCSD) - Rady School of Management ( email )
9500 Gilman Drive
Rady School of Management
La Jolla, CA 92093
United States
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