IDEAS home Printed from https://ideas.repec.org/a/bla/finrev/v49y2014i1p117-148.html
   My bibliography  Save this article

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

Author

Listed:
  • Bradley W. Benson
  • Jung Chul Park
  • Wallace N. Davidson III

Abstract

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.

Suggested Citation

  • Bradley W. Benson & Jung Chul Park & Wallace N. Davidson III, 2014. "Equity-Based Incentives, Risk Aversion, and Merger-Related Risk-Taking Behavior," The Financial Review, Eastern Finance Association, vol. 49(1), pages 117-148, February.
    • Handle: RePEc:bla:finrev:v:49:y:2014:i:1:p:117-148
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1111/fire.12028
    Download Restriction: Access to full text is restricted to subscribers.
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Tang, Chun-Hua, 2016. "Impacts of future compensation on the incentive effects of existing executive stock options," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 273-285.
    2. Mazur, Mieszko & Salganik-Shoshan, Galla, 2019. "The effect of executive stock option delta and vega on the spin-off decision," The Quarterly Review of Economics and Finance, Elsevier, vol. 72(C), pages 132-144.
    3. Kai Xu & Michael A. Hitt, 2020. "The international expansion of family firms: The moderating role of internal financial slack and external capital availability," Asia Pacific Journal of Management, Springer, vol. 37(1), pages 127-153, March.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:finrev:v:49:y:2014:i:1:p:117-148. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: https://edirc.repec.org/data/efaaaea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.