2014
DOI: 10.2308/accr-50860
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Non-Executive Employee Ownership and Corporate Risk

Abstract: Prior research documents a negative link between risk and executive holding of stock, but a corresponding positive link for options. We find a similar negative relation for non-executive holding of stock. Our finding is consistent with the view that non-executives not only face significant incentives to reduce risk when they hold stock, but they are also able to affect corporate risk. While endogeneity cannot be ruled out fully, the results of a battery of tests suggest that it plays a limited role. A second r… Show more

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Cited by 96 publications
(65 citation statements)
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References 47 publications
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“…Note that because firm performance and compensation decisions likely are jointly determined, I take steps to alleviate concerns about endogeneity. To mitigate simultaneity, Adj RNOA is measured in year t+1 in all my regressions, with Adj RNOA t included as an independent variable in all regressions to control for omitted variables (Bova et al 2015). I include firm fixed effects to control for time-invariant firm characteristics and year fixed effects to control for aggregate time-series trends.…”
Section: Pay Ratios and Firm Performancementioning
confidence: 99%
See 1 more Smart Citation
“…Note that because firm performance and compensation decisions likely are jointly determined, I take steps to alleviate concerns about endogeneity. To mitigate simultaneity, Adj RNOA is measured in year t+1 in all my regressions, with Adj RNOA t included as an independent variable in all regressions to control for omitted variables (Bova et al 2015). I include firm fixed effects to control for time-invariant firm characteristics and year fixed effects to control for aggregate time-series trends.…”
Section: Pay Ratios and Firm Performancementioning
confidence: 99%
“…Second, I include firm fixed effects in my regressions to control for unobservable time-invariant firm characteristics. Third, I include contemporaneous Adj RNOA among the independent variables to control for potential omitted variables(Bova, Kolev, Thomas, and Zhang 2015). Fourth, I redo my tests using industry-adjusted ratios(Bebchuk et al 2011).…”
mentioning
confidence: 99%
“…This result is different from the findings of previous studies, which reveal that firms with greater stock return volatility are more likely to carry D&O insurance because they have a greater likelihood of being the target of shareholder litigation. Our evidence suggests that insofar as stock return volatility proxies for the firm's risk-taking behavior (Rajgopal and Shevlin, 2002;Coles, Daniel, and Naveen, 2006;Low 2009;Cassell et al, 2012;Hirshleifer, Low, and Teoh, 2012;Kini and Williams, 2012;Bova et al, 2014), firms that take on higher risk are not necessarily more likely to purchase D&O insurance.…”
Section: Determinants Of Dando Insurancementioning
confidence: 89%
“…The data come from the Center for Research on Security Prices. As a robustness check, I considered an alternative empirical proxy: the volatility of accounting rates of return, calculated as the seasonally differenced quarterly ROA over the subsequent 5 years, where ROA is income before extraordinary items, scaled by average total assets for the quarter (see Bova, Kolev, Thomas, & Zhang, 2014). These data come from…”
Section: Controlsmentioning
confidence: 99%