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Respondable risk and incentives for CEOs: The role of information-collection and decision-making

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  • Shi, Lan

Abstract

This paper examines the incentive provision when the agent can respond to risk by exerting effort to collect information about the underlying state and making corresponding decisions. Such effort is shown to be more valuable in a riskier environment and incentives can increase with "respondable" risk. The relation between incentives and risk is more positive when the agent's effort is more effective in collecting information or in acting upon it. Using data on chief executive officers (CEOs), I find that incentives for CEOs increase with industry-wide risk, a measure of respondable risk. The positive relation diminishes when the CEO is less able to collect information or is less effective in acting upon it.

Suggested Citation

  • Shi, Lan, 2011. "Respondable risk and incentives for CEOs: The role of information-collection and decision-making," Journal of Corporate Finance, Elsevier, vol. 17(1), pages 189-205, February.
  • Handle: RePEc:eee:corfin:v:17:y:2011:i:1:p:189-205
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    Cited by:

    1. repec:bla:jemstr:v:26:y:2017:i:1:p:231-256 is not listed on IDEAS
    2. Josef Windsperger, 2013. "The governance of franchising networks," Chapters,in: Handbook of Economic Organization, chapter 27 Edward Elgar Publishing.
    3. Wojakowski, Rafał M., 2012. "How should firms selectively hedge? Resolving the selective hedging puzzle," Journal of Corporate Finance, Elsevier, vol. 18(3), pages 560-569.
    4. Ben-Ner, Avner & Kong, Fanmin & Lluis, Stéphanie, 2012. "Uncertainty, task environment, and organization design: An empirical investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 281-313.
    5. repec:bla:indres:v:56:y:2017:i:3:p:411-426 is not listed on IDEAS
    6. repec:kap:sbusec:v:50:y:2018:i:1:d:10.1007_s11187-017-9885-3 is not listed on IDEAS

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