Too Much Pay Performance Sensitivity?

CEO Tenure and Risk-Taking

“…We examine the second and third possible explanations in Models 2 and 3, and we examine the fourth explanation in the next subsection when we test the career concern hypothesis. Consistent with the evidence in Brick et al (2012), Model 1 shows that both delta and vega are negatively associated with risk-taking. The negative effect of delta on risk-taking may reflect the reluctance of CEOs to take risks when their portfolio wealth is sensitive to the fluctuation of stock price (e.g., Coles et al, 2006;Gormley et al, 2013).…”

“…We adopt several strategies to alleviate the potential omitted variable bias. First, in addition to the extensive list of controls as described above, we also follow Brick et al (2012) and control for lagged dependent variables.…”

“…A long list of empirical studies examines the effect of explicit compensation incentives on managerial risk-taking (e.g., Guay, 1999;Coles et al, 2006;Chakraborty et al, 2007;Brick et al, 2012;Gormley et al, 2013). In contrast, the empirical work on the relationship between risk-taking and implicit incentives, in particular the incentives of managers to secure or advance their careers, is significantly less despite the arguments that career concerns matter for risk-taking incentives (e.g., Hermalin, 1993;Holmstrom, 1999;Chen, 2013;Fu & Li, 2014).…”

“…The advantage of GMM specification is that it considers the endogeneity of not only the primary variable of interest but also other potentially endogenous control variables. In addition, we follow Brick et al (2012) and control for lagged dependent variables, which may further reduce the endogeneity concerns.…”

Corporate Diversification, Information Asymmetry and Insider Trading

“…The natural logarithm of pay-performance sensitivity of directors is calculated following the method in Brick, Palmon and Wald (2012). All PPS values are measured using annual reports for 2004.…”