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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 The 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
© Emerald Publishing Limited
ISSN
1755-425X
DOI
10.1108/jsma-08-2017-0055
Publisher site
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Abstract

The 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 Management – Emerald Publishing

Published: Aug 10, 2018

Keywords: CEO compensation; Strategic risk; Longitudinal analysis

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