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Managerial risk-taking behavior and equity-based compensation

  • Low, Angie
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    Equity-based compensation affects managers' risk-taking behavior, which in turn has an impact on shareholder wealth. In response to an exogenous increase in takeover protection in Delaware during the mid-1990s, managers lower firm risk by 6%. This risk reduction is concentrated among firms with low managerial equity-based incentives, in particular firms with low chief executive officer portfolio sensitivity to stock return volatility. Furthermore, the risk reduction is value-destroying. Finally, firms respond to the increased protection accorded by the regime shift by providing managers with greater incentives for risk-taking.

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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 92 (2009)
    Issue (Month): 3 (June)
    Pages: 470-490

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    Handle: RePEc:eee:jfinec:v:92:y:2009:i:3:p:470-490
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