Do Risk-Taking Incentives Induce CEOs to Invest? Evidence from Acquisitions
52 Pages Posted: 22 May 2013 Last revised: 25 Mar 2015
Date Written: March 1, 2015
This paper examines the effect of risk-taking incentives on acquisition investments. We find that CEOs with risk-taking incentives are more likely to invest in acquisitions. Economically, an inter-quartile range increase in vega translates into an approximately 4.22% enhancement in acquisition investments, consistent with the theory that risk-taking incentives induce CEOs to undertake investments. Importantly, the positive relation between vega and acquisitions is confined only to non-overconfident CEOs subgroup. Further, corporate governance does not generally affect the association between vega and acquisition investments. Finally, vega is positively related to bidder announcement returns.
Keywords: Executive compensation, Managerial incentives, Risk-taking, Mergers and acquisitions, Overconfidence
JEL Classification: G34, J33, M12
Suggested Citation: Suggested Citation