An Empirical Analysis of the Role of Risk Aversion in Executive Compensation Contracts
AbstractThis paper empirically tests the principal-agent model prediction that the use of performance measures for incentive purposes is affected by the agent’s risk aversion. We find that the use of both accounting and market performance measures in executive compensation contracts decreases as the level of risk aversions increases. We further find that agent-specific characteristics, i.e., risk aversion, become more important in designing executive compensation contracts when performance measures are less useful due to measure-specific characteristics.
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Bibliographic InfoPaper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 013.
Date of creation: 2000
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