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CEO Compensation and Cash-Flow Shocks: Evidence from Changes in Environmental Regulations / Seungho Choi, Ross Levine, Raphael Jonghyeon Park, Simon Xu.
- Format:
- Book
- Author/Creator:
- Choi, Seungho.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w32101.
- NBER working paper series no. w32101
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2024.
- Summary:
- This paper investigates how shocks to expected cash flows influence CEO incentive compensation. Exploiting changes in compliance with environmental regulations as shocks to expected future cash flows, we find that adverse shocks typically prompt corporate boards to recalibrate CEO compensation to reduce risk-taking incentives. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a "gambling for resurrection" strategy. Moreover, the strength of corporate governance influences shareholders' capacity to align executive incentives with shareholder risk preferences following unanticipated changes in the stringency of environmental regulations.
- Notes:
- Print version record
- February 2024.
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