52 Pages Posted: 25 Jul 2013 Last revised: 11 Jun 2014
Date Written: February 14, 2014
Prior research documents a negative link between risk and executive holding of stock (positive link observed for options). We find a similar negative relation for non-executive holding of stock. Our finding is consistent with the view that non-executives not only face significant incentives to reduce risk when they hold stock, but they are also able to affect firm risk. While endogeneity cannot be fully ruled out, the results of a battery of tests suggest that it plays a limited role. A second robust result is that the documented relation becomes more negative as option-based executive compensation increases. Overall, corporate risk is related to the incentives created by stock and options held by both executives and non-executives, as well as interactions among those incentives.
Keywords: Employee ownership, employee compensation, executive compensation, risk
JEL Classification: G30, M20, M40
Suggested Citation: Suggested Citation
Bova, Francesco and Kolev, Kalin S. and Thomas, Jacob K. and Zhang, Frank, Non-Executive Employee Ownership and Corporate Risk (February 14, 2014). Rotman School of Management Working Paper No. 2297996. Available at SSRN: https://ssrn.com/abstract=2297996 or http://dx.doi.org/10.2139/ssrn.2297996
By Kevin Murphy