Managerial Risk-Taking Behavior and Equity-Based Compensation
42 Pages Posted: 19 Mar 2008 Last revised: 27 Sep 2010
Date Written: February 24, 2008
I study managers' risk-taking behavior and how it is affected by equity-based compensation. I find that in response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 6%. I also find that the decrease in firm risk is concentrated among firms with low managerial equity-based incentives, in particular, firms with low CEO portfolio sensitivity to stock return volatility. Furthermore, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking.
Keywords: Managerial risk-taking, Equity-based compensation, Staggered boards and poison pills
JEL Classification: G32, G34, J33, J41
Suggested Citation: Suggested Citation