Managerial Incentives, Risk Aversion, and Debt

Andreas Milidonis; Konstantinos Stathopoulos

doi:10.1017/S0022109014000301

Managerial Incentives, Risk Aversion, and Debt

Andreas Milidonis, Konstantinos Stathopoulos

A&F Accounting & Finance

Research output: Contribution to journal › Article › peer-review

Abstract

We investigate the risk choices of risk averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage, or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk taking incentives. Our results are robust to controls for the sensitivity of CEO wealth to stock price changes, firm risk determinants, the endogenous feedback effects of firm risk on CEO incentives, unobserved firm and market effects, and debt governance. The impact of CEO risk aversion is economically significant. Copyright © Michael G. Foster School of Business, University of Washington 2014.

Original language	English
Pages (from-to)	453-481
Journal	Journal of Financial and Quantitative Analysis
Volume	49
Issue number	2
DOIs	https://doi.org/10.1017/S0022109014000301
Publication status	Published - 23 May 2014

Keywords

Bankruptcy
CEO incentives
Executive compensation
Risk taking
Risky debt

Access to Document

10.1017/S0022109014000301

Cite this

@article{ce92ba824f054ce3a55311db28cc0466,

title = "Managerial Incentives, Risk Aversion, and Debt",

abstract = "We investigate the risk choices of risk averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage, or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk taking incentives. Our results are robust to controls for the sensitivity of CEO wealth to stock price changes, firm risk determinants, the endogenous feedback effects of firm risk on CEO incentives, unobserved firm and market effects, and debt governance. The impact of CEO risk aversion is economically significant. Copyright {\textcopyright} Michael G. Foster School of Business, University of Washington 2014.",

keywords = "Bankruptcy, CEO incentives, Executive compensation, Risk taking, Risky debt",

author = "Andreas Milidonis and Konstantinos Stathopoulos",

year = "2014",

month = may,

day = "23",

doi = "10.1017/S0022109014000301",

language = "English",

volume = "49",

pages = "453--481",

journal = "Journal of Financial and Quantitative Analysis",

issn = "0022-1090",

publisher = "Cambridge University Press",

number = "2",

}

TY - JOUR

T1 - Managerial Incentives, Risk Aversion, and Debt

AU - Milidonis, Andreas

AU - Stathopoulos, Konstantinos

PY - 2014/5/23

Y1 - 2014/5/23

N2 - We investigate the risk choices of risk averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage, or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk taking incentives. Our results are robust to controls for the sensitivity of CEO wealth to stock price changes, firm risk determinants, the endogenous feedback effects of firm risk on CEO incentives, unobserved firm and market effects, and debt governance. The impact of CEO risk aversion is economically significant. Copyright © Michael G. Foster School of Business, University of Washington 2014.

AB - We investigate the risk choices of risk averse CEOs. Following recent theoretical work, we expect CEO risk aversion to be more pronounced in firms with high leverage, or high default probability. We find that the CEOs of these firms reduce firm risk, even in the presence of strong risk taking incentives. Our results are robust to controls for the sensitivity of CEO wealth to stock price changes, firm risk determinants, the endogenous feedback effects of firm risk on CEO incentives, unobserved firm and market effects, and debt governance. The impact of CEO risk aversion is economically significant. Copyright © Michael G. Foster School of Business, University of Washington 2014.

KW - Bankruptcy

KW - CEO incentives

KW - Executive compensation

KW - Risk taking

KW - Risky debt

U2 - 10.1017/S0022109014000301

DO - 10.1017/S0022109014000301

M3 - Article

SN - 0022-1090

VL - 49

SP - 453

EP - 481

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

IS - 2

ER -

Managerial Incentives, Risk Aversion, and Debt

Abstract

Keywords

Access to Document

Fingerprint

Cite this