CEO Risk Taking Equity Incentives and Workplace Misconduct

Abstract

We examine the relation between CEO risk taking equity incentives, as captured by CEO vega, and workplace misconduct. Workplace misconduct includes health and safety violations, non-compliance with labor laws, and other violations broadly related to labor exploitation, and it results in significant economic costs. Using regression analysis, matched sample tests, and a quasi-natural experiment we find a positive relation between CEO vega and workplace misconduct. We identify a reduction in discretionary expenses and increased employee workload as channels through which CEO vega affects workplace misconduct.

Keywords: Workplace Misconduct, Executive Compensation, Risk taking Equity Incentives

JEL Classification: G30, G32, G34