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How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis

How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis PurposeThe purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as moderators.Design/methodology/approachThe paper uses a longitudinal regression analysis. In addition, the paper includes interactional plots for further interpretation.FindingsThe results indicate that CEO ownership reduces risk taking, while there is a partial support that stock options increase risk taking. CEO tenure is a powerful moderator that decreases risk taking in both CEO ownership and CEO stock option scenarios. Board independence, counter to the hypothesis in this paper, may encourage risk taking.Research limitations/implicationsThe findings in this paper provide support for the inclusion of CEO power variables in CEO compensation studies. However, the study examines large publicly traded companies; thus, all findings may not be applicable to small- and medium-sized companies.Originality/valueScholars have encouraged more complex CEO compensation models and the authors have examined both main effect and interaction models. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Journal of Strategy and Management Emerald Publishing

How to strike a balance between CEO compensation and strategic risk? A longitudinal analysis

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
1755-425X
DOI
10.1108/JSMA-08-2017-0055
Publisher site
See Article on Publisher Site

Abstract

PurposeThe purpose of this paper is to examine the relationships between CEO ownership, stock option compensation, and risk taking. The authors include important CEO power variables as moderators.Design/methodology/approachThe paper uses a longitudinal regression analysis. In addition, the paper includes interactional plots for further interpretation.FindingsThe results indicate that CEO ownership reduces risk taking, while there is a partial support that stock options increase risk taking. CEO tenure is a powerful moderator that decreases risk taking in both CEO ownership and CEO stock option scenarios. Board independence, counter to the hypothesis in this paper, may encourage risk taking.Research limitations/implicationsThe findings in this paper provide support for the inclusion of CEO power variables in CEO compensation studies. However, the study examines large publicly traded companies; thus, all findings may not be applicable to small- and medium-sized companies.Originality/valueScholars have encouraged more complex CEO compensation models and the authors have examined both main effect and interaction models.

Journal

Journal of Strategy and ManagementEmerald Publishing

Published: Aug 20, 2018

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