Non-Executive Employee Ownership and Corporate Risk

52 Pages Posted: 13 Jun 2014 Last revised: 4 Aug 2014

See all articles by Francesco Bova

Francesco Bova

University of Toronto - Rotman School of Management

Kalin S. Kolev

City University of New York - Stan Ross Department of Accountancy

Jacob K. Thomas

Yale School of Management

Frank Zhang

Yale School of Management

Multiple version iconThere are 2 versions of this paper

Date Written: June 11, 2014

Abstract

Prior research documents a negative link between risk and executive holding of stock (generally positive link is 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 corporate risk. While endogeneity cannot be ruled out fully, 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

Bova, Francesco and Kolev, Kalin S. and Thomas, Jacob Kandathil and Zhang, Frank, Non-Executive Employee Ownership and Corporate Risk (June 11, 2014). Accounting Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2449063

Francesco Bova (Contact Author)

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada
416-978-3985 (Phone)

Kalin S. Kolev

City University of New York - Stan Ross Department of Accountancy ( email )

One Bernard Baruch Way, Box B12-225
New York, NY 10010
United States

Jacob Kandathil Thomas

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

Frank Zhang

Yale School of Management ( email )

135 Prospect Street
P.O. Box 208200
New Haven, CT 06520-8200
United States

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