Risk Aversion, Compensation Scheme, and Corporate Investment: Evidence From the Field

27 Pages Posted: 21 May 2019

See all articles by Naoshi Ikeda

Naoshi Ikeda

Tokyo Institute of Technology

Kotaro Inoue

Tokyo Institute of Technology

Takashi Yamasaki

Kobe University - Graduate School of Business Administration

Date Written: April 22, 2019

Abstract

When previous studies analyze the relationship between compensation scheme and corporate behavior, they do not explicitly consider the personal risk aversion of executives. We directly measure the degree of risk aversion by a survey with Japanese data. We find that the higher the personal risk aversion of CFOs, the lower the level of high-risk investment. We also find that this effect of the risk aversion on investment is strengthened when the portfolio of CFOs is less diversified and weakened by the compensation scheme with a convex payoff.

Keywords: risk aversion, compensation scheme, convex payoff, investment

JEL Classification: G31, G33, G34

Suggested Citation

Ikeda, Naoshi and Inoue, Kotaro and Yamasaki, Takashi, Risk Aversion, Compensation Scheme, and Corporate Investment: Evidence From the Field (April 22, 2019). Available at SSRN: https://ssrn.com/abstract=3375858 or http://dx.doi.org/10.2139/ssrn.3375858

Naoshi Ikeda (Contact Author)

Tokyo Institute of Technology ( email )

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Kotaro Inoue

Tokyo Institute of Technology ( email )

2-12-1 O-okayama, Meguro-ku
Tokyo 152-8550, 52-8552
Japan

Takashi Yamasaki

Kobe University - Graduate School of Business Administration ( email )

2-1 Rokkodai-cho
Nada-ku
Kobe, Hyogo 657-8501
Japan

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