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    The Impact of CEOs’ Incentives for Risk-Taking or Risk-Aversion on Corporate Performance: Using CEO Vega and CEO Delta as Incentive Measures

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    Garas et al. - 2022 - The impact ...
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    Author
    Garas, Samy
    Kienpin, Tee
    Lee, Chuo-Hsuan
    Keyword
    CEO Vega & Delta
    Earning Management
    Corporate Performance
    Journal title
    Accountancy Business and the Public Interest
    Date Published
    2022
    
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    URI
    http://hdl.handle.net/20.500.12648/7141
    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.
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