Corporate Risk: CEO Overconfidence and Incentive Compensation

Aabo, Tom; Hvistendahl, Nicholai Theodor; Kring, Jacob

doi:10.2139/ssrn.3733106

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2020

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“…The work of Aabo et al (2020) has identified, through analyzing 942 CEOs from 566 S&P 1500 organizations, that the only causal interaction between CEO incentive compensation and overconfidence (resulting in increased corporate risk) comes from the employment of overconfident CEOs who are given high incentive compensation. Such a combination leads to increased corporate risk, irrespective of whether such risks are to the benefit of the organization.…”

Section: Tricky Timesmentioning

confidence: 99%

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Unrestrained chief execs

2020

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Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings Overconfident CEOs are more likely to push organizations towards unacceptably high levels of corporate risk when given high incentive compensation. Originality/value The briefing saves busy executives, strategists and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

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Section: Tricky Timesmentioning

confidence: 99%

“…The review is based on ‘Corporate risk: CEO overconfidence and incentive compensation’ by Tom Aabo et al (2020), published in Managerial Finance.…”

Section: Commentmentioning

confidence: 99%