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Throwing caution to the wind: The effect of CEO stock option pay on the incidence of product safety problems

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  • Adam J. Wowak
  • Michael J. Mannor
  • Kaitlin D. Wowak

Abstract

type="main" xml:id="smj2277-abs-0001"> Stock options are thought to align the interests of CEOs and shareholders, but scholars have shown that options sometimes lead to outcomes that run counter to what they are meant to achieve. Building on this research, we argue that options promote a lack of caution in CEOs that manifests in a higher incidence of product safety problems. We also posit that this relationship varies across CEOs, and that the effect of options will depend upon CEO characteristics such as tenure and founder status. Analyzing product recall data for a large sample of FDA-regulated companies, we find support for our theory . Copyright © 2014 John Wiley & Sons, Ltd.

Suggested Citation

  • Adam J. Wowak & Michael J. Mannor & Kaitlin D. Wowak, 2015. "Throwing caution to the wind: The effect of CEO stock option pay on the incidence of product safety problems," Strategic Management Journal, Wiley Blackwell, vol. 36(7), pages 1082-1092, July.
    • Handle: RePEc:bla:stratm:v:36:y:2015:i:7:p:1082-1092
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    File URL: http://hdl.handle.net/10.1002/smj.2277
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    References listed on IDEAS

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