Non-Executive Employee Ownership and Corporate Risk
52 Pages Posted: 13 Jun 2014 Last revised: 4 Aug 2014
Date Written: June 11, 2014
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: Suggested Citation