Shareholder litigation and the risk incentive effect of executive compensation: A re-examination

Posted: 20 Apr 2021

See all articles by Isarin Durongkadej

Isarin Durongkadej

Georgia College & State University

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge

Date Written: October 7, 2020

Abstract

Previous literature shows that securities litigation is positively impacted by management compensation with a focus on the delta, but not the vega, component of compensation. We argue that the vega, rather than the delta, component of management compensation should be associated with litigation propensity. Using a sample from 1996 to 2018, we document that securities litigation is related to option vega but not to delta. Our results are robust to alternate specifications of delta and vega, and to endogeneity concerns from reverse causality.

Keywords: Securities litigation,management incentives,securities fraud,option compensation

JEL Classification: G30, G34, J33, K22

Suggested Citation

Durongkadej, Isarin and Rao, Ramesh P. and Wei, Siqi, Shareholder litigation and the risk incentive effect of executive compensation: A re-examination (October 7, 2020). Finance Research Letters, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3829335

Isarin Durongkadej (Contact Author)

Georgia College & State University ( email )

410 West Greene St.
Milledgeville, GA 31061
United States

Ramesh P. Rao

Oklahoma State University - Stillwater - Spears School of Business - Department of Finance ( email )

Spears School of Business
Stillwater, OK 74078-4011
United States
405-744-1385 (Phone)
405-744-5180 (Fax)

Siqi Wei

David Nazarian College of Business and Economics, California State University, Northridge ( email )

18111 Nordhoff Street
Northridge, CA 91330
United States

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