Managerial incentives for risk-taking and internal capital allocation

Casavecchia, L; Suh, JY

Managerial incentives for risk-taking and internal capital allocation

Casavecchia, L

Suh, JY

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Publisher:: SAGE PUBLICATIONS LTD
Publication Type:: Journal Article
Citation:: Australian Journal of Management, 2017, 42, (3), pp. 428-461
Issue Date:: 2017

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Field	Value	Language
dc.contributor.author	Casavecchia, L https://orcid.org/0000-0003-1452-3059
dc.contributor.author	Suh, JY
dc.date.accessioned	2022-07-27T04:24:31Z
dc.date.available	2022-07-27T04:24:31Z
dc.date.issued	2017
dc.identifier.citation	Australian Journal of Management, 2017, 42, (3), pp. 428-461
dc.identifier.issn	0312-8962
dc.identifier.issn	1327-2020
dc.identifier.uri	http://hdl.handle.net/10453/159209
dc.description.abstract	In this study, we show that the option-like structure of equity-based compensation encourages managerial risk-taking and provide new evidence on the way in which CEO’s risk-taking could manifest itself in a multi-segment firm. Our results show that a greater sensitivity of managerial compensation to shareholder wealth—as proxied by CEO’s portfolio vega—leads to greater risk-taking through active capital allocation. We then analyze the impact of risk-taking on shareholder wealth and demonstrate that risk-taking is positively associated with future stock returns. Overall, this article contributes to the literature by providing evidence that equity-based compensation does actually promote the alignment of interests between shareholders and managers.
dc.language	English
dc.publisher	SAGE PUBLICATIONS LTD
dc.relation.ispartof	Australian Journal of Management
dc.relation.isbasedon	10.1177/0312896216652181
dc.rights	info:eu-repo/semantics/closedAccess
dc.subject	15 Commerce, Management, Tourism and Services
dc.title	Managerial incentives for risk-taking and internal capital allocation
dc.type	Journal Article
utslib.citation.volume	42
utslib.for	15 Commerce, Management, Tourism and Services
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
utslib.copyright.status	closed_access	*
pubs.consider-herdc	false
dc.date.updated	2022-07-27T04:24:30Z
pubs.issue	3
pubs.publication-status	Published
pubs.volume	42
utslib.citation.issue	3

Abstract:

In this study, we show that the option-like structure of equity-based compensation encourages managerial risk-taking and provide new evidence on the way in which CEO’s risk-taking could manifest itself in a multi-segment firm. Our results show that a greater sensitivity of managerial compensation to shareholder wealth—as proxied by CEO’s portfolio vega—leads to greater risk-taking through active capital allocation. We then analyze the impact of risk-taking on shareholder wealth and demonstrate that risk-taking is positively associated with future stock returns. Overall, this article contributes to the literature by providing evidence that equity-based compensation does actually promote the alignment of interests between shareholders and managers.

Please use this identifier to cite or link to this item:

http://hdl.handle.net/10453/159209