The Rise of Corporate Governance in Corporate Control Research

Netter, Jeffry M.; Poulsen, Annette B.; Stegemoller, Mike

doi:10.2139/ssrn.1287923

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2009

2014

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“…As reported in Netter, Poulsen and Stegemoller (), there is a trend toward an increase in the importance of internal governance in corporate control research. Thus, our question of whether equity‐based incentives are related to post‐merger risk remains an important question.…”

Section: Discussionmentioning

confidence: 84%

Equity‐Based Incentives, Risk Aversion, and Merger‐Related Risk‐Taking Behavior

Benson

Park

Davidson³

2014

The Financial Review

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We find that post‐merger equity risk is negatively related to the sensitivity of CEO wealth to stock return volatility (vega), but is concentrated in CEOs with high proportions of options and options that are more in‐the‐money. The probability of industrial diversification also increases in vega. Additional tests show that the decline in post‐merger equity risk results in a significant decrease in shareholder wealth. This decrease is concentrated among firms with CEOs having the highest delta and the highest delta and vega. Our results suggest that the increased convexity provided by option‐based compensation does not necessarily increase risk‐taking behavior by CEOs.

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Section: Discussionmentioning

confidence: 84%