CEO Compensation and Risk-Taking: Evidence from Listed European Hotel Firms

28 Pages Posted: 15 Dec 2020

See all articles by Olga Fullana

Olga Fullana

Universitat de València

Alba María Priego de la Cruz

University of Castilla-La Mancha; University of Castilla-La Mancha

David Toscano

University of Liverpool; University of Huelva

Date Written: November 3, 2020

Abstract

This paper examines the relationship between CEO compensation policies and financial performance in the European hotel sector. We analyze CEO cash-, equity- and total-compensation relationships with two accounting-based and two market-based financial performance proxies, including a bi-dimensional proxy formed by stock market return and risk. This bi-dimensional market-based financial performance proxy enables us to take a deep dive into the relationship between CEO compensation policies and firm risk-taking. We then analyze the nature of this relationship by decomposing market-based risk into systematic and idiosyncratic risk, using five alternative asset-pricing factorial models. Our results support a negative and significant relationship between CEO compensation policies and risk-taking by hotel firms. Moreover, we present evidence that relates this result directly with the idiosyncratic risk assumed by these European companies.

Keywords: Accounting-based performance measures; CEO compensation components; Corporate governance mechanisms; Systematic and idiosyncratic financial risk; Market-based performance measures

JEL Classification: G12; G32

Suggested Citation

Fullana, Olga and Priego de la Cruz, Alba María and Toscano, David, CEO Compensation and Risk-Taking: Evidence from Listed European Hotel Firms (November 3, 2020). Available at SSRN: https://ssrn.com/abstract=3743575 or http://dx.doi.org/10.2139/ssrn.3743575

Olga Fullana

Universitat de València ( email )

València, Valencia
Spain

Alba María Priego de la Cruz

University of Castilla-La Mancha

Plaza Universidad, 1
02071 Albacete, Ciudad Real 13071
Spain

University of Castilla-La Mancha

Plaza Universidad, 1
02071 Albacete, Ciudad Real 13071
Spain

David Toscano (Contact Author)

University of Liverpool ( email )

Chatham Street
Liverpool, L69 7ZA
United Kingdom

University of Huelva ( email )

Huelva
Spain

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