How do Quasi-Random Option Grants Affect CEO Risk-Taking? / Kelly Shue, Richard Townsend.

Format:

Book

Author/Creator:

Shue, Kelly.

Contributor:

National Bureau of Economic Research.

Townsend, Richard.

Series:

Working Paper Series (National Bureau of Economic Research) no. w23091.

NBER working paper series no. w23091

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2017.

Summary:

We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multi-year compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 2.8-4.2 percent increase in equity volatility. This increase in risk is driven largely by increased leverage.

Notes:

Print version record

January 2017.