Powerful CEOs and Corporate Risk-Taking: Evidence from the CEO Pay Slice (CPS)

13 Pages Posted: 20 May 2014

See all articles by Pandej Chintrakarn

Pandej Chintrakarn

Mahidol University International College (MUIC)

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Shenghui Tong

Central University of Finance and Economics (CUFE)

Date Written: May 20, 2014

Abstract

We explore the role of powerful CEOs on the extent of risk-taking, using Bebchuk, Cremers, and Peyer’s (2011) CEO pay slice (CPS). Based on more than 12,000 observations over 20 years (1992-2012), our results reveal a non-monotonic association. In particular, relatively less powerful CEOs exhibit risk aversion, resulting in less risky strategies. However, when the CEO has his power consolidated beyond a certain point, he is less likely to compromise with other executives, leading to less moderate decisions and more risky strategies. We estimate that the CEO has to wield considerable power, i.e. around the 75th percentile of CPS, before significantly more risk-taking is observed. Finally, we show that our results are unlikely vulnerable to endogeneity.

Keywords: CEO power, risk-taking, powerful CEOs, risk aversion, CEO pay slice

JEL Classification: G32, G34

Suggested Citation

Chintrakarn, Pandej and Jiraporn, Pornsit and Tong, Shenghui, Powerful CEOs and Corporate Risk-Taking: Evidence from the CEO Pay Slice (CPS) (May 20, 2014). Available at SSRN: https://ssrn.com/abstract=2439080 or http://dx.doi.org/10.2139/ssrn.2439080

Pandej Chintrakarn

Mahidol University International College (MUIC) ( email )

999 Buddhamonthon 4 Road
Salaya, Nakhonpathom, 73170
Thailand
66 (0) 2441 5090 (Phone)
66 (0) 2441 9745 (Fax)

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Shenghui Tong

Central University of Finance and Economics (CUFE) ( email )

39 South College Road
Haidian District
Beijing, Beijing 100081
China

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