Loading...
The Impact of CEOs’ Incentives for Risk-Taking or Risk-Aversion on Corporate Performance: Using CEO Vega and CEO Delta as Incentive Measures
Journal Title
Accountancy Business and the Public Interest
Readers/Advisors
Journal Title
Term and Year
Publication Date
2022
Book Title
Publication Volume
Publication Issue
Publication Begin
Publication End
Number of pages
Collections
Files
Loading...
Main article
Adobe PDF, 243 KB
Research Projects
Organizational Units
Journal Issue
Abstract
This article has a two-fold purpose. First, we investigate whether the CEOs’ risk-taking incentives are associated with better concurrent firm performance. Second, we examine the impact of gender on the aforementioned relationship. We find solid empirical evidence that CEOs’ risk-aversion incentive, as represented by a higher CEO delta, can be linked to better concurrent firm performance such as return on assets (ROA) and Market-to-Book Value (MTB) ratio. By contrast, we find that the risk-taking incentive, as represented by CEO vega, has no significant impact on ROA, but has a significant impact on MTB ratio only among the group of CEOs with larger share ownerships. Furthermore, we research on the same incentives using only female CEOs in our sample. Our panel-data findings indicate that female CEOs on average possessed a lower CEO delta (low risk aversion) and a lower CEO vega (risk-taking incentive) in their compensation packages when compared with their male counterparts. Taken together, these two risk incentives; are linked to a lower concurrent ROA and MTB value. Our findings also indicate that the aforementioned positive relationship between CEOs’ risk- aversion incentive (as measured by CEO delta) and firm performance (as measured by ROA) are less pronounced when a CEO is female. This implies that a female CEO is less likely to increase the firm’s ROA relative to a male CEO, given the same sensitivity of personal wealth to stock price change (i.e., the same CEO delta).
Citation
Garas, S., Tee, K., & Lee, C.-H. (2022). The impact of CEOs’ incentives for risk-taking or risk-aversion on corporate performance: using CEO vega and CEO delta as incentive measures. Accountancy Business and the Public Interest.