A single link to the first track to allow the export script to build the search page
  • 2007 Fall: Volume 5, Issue 2
  • Do Stock Options Encourage Managers to Take Risk?

    • Howard Qi ;
    • Peter Woodlock ;
    • Sheen Liu ;
    • Haiyang Chen

    Use this link to view the PDF file: Do Stock Options Encourage Managers to Take Risk?

    Title:

    Do Stock Options Encourage Managers to Take Risk?

    Author(s):

    Howard Qi
    Peter Woodlock
    Sheen Liu
    Haiyang Chen

    Publication Date:

    2007

    Journal Title:

    The Journal of Finance Issues

    Volume Number:

    5

    Issue Number:

    2

    Abstract:

    The empirical results derived from our fixed effects model provide no support for a linkage between a CEO's stock option grant and future firm risk. We find, using the panel corrected error term methods (PCSE) that control for the heteroscedasticity and autocorrelation, that current period stock option awards do have a positive effect on future firm risk. From the PCSE model we also find that the current year's market risk premium has a statistically significant negative effect on firm risk. The paper shows that changes in an executive's base salary can be used to mitigate the influence that stock option grants have on future firm risk. Of particular importance to shareholders is our finding that the firm's future risk profile increases with CEO tenure, suggesting that CEOs adopt more aggressive strategies over time.

    First Page:

    160

    Last Page:

    175

    Total Pages:

    15