High return, high risk : does stock option based CEO compensation encourage risk taking & its implications after the adoption of FAS 123R

Pao Yue-kong Library Electronic Theses Database

High return, high risk : does stock option based CEO compensation encourage risk taking & its implications after the adoption of FAS 123R

 

Author: Xia, Hui Harry
Title: High return, high risk : does stock option based CEO compensation encourage risk taking & its implications after the adoption of FAS 123R
Degree: D.Mgt.
Year: 2010
Subject: Hong Kong Polytechnic University -- Dissertations
Chief executive officers -- Salaries, etc.
Department: Graduate School of Business
Pages: v, 107 leaves ; 30 cm.
InnoPac Record: http://library.polyu.edu.hk/record=b2398598
URI: http://theses.lib.polyu.edu.hk/handle/200/6018
Abstract: This study, through empirical evidence of 3,081 firms during the period of 1992-2009, show a strong causal relation between different CEO compensation components and firms' investment policy and firm risk. Specifically, the proportion of CEO option-based compensation is positively and significantly associated with firm's R&D expenditures and firm focus, while the proportion of cash-based and restricted stock compensation are negatively and significantly related. Such results are robust across alternative measures and statistical methodology. Furthermore, I find the non-linear relation between CEO option pay level and R&D investment with practical implications. Finally, following the implementation of FAS 123R in 2005, I provide new evidence that, despite a clear tendency of CEO option pay reduction and replacement with restricted stocks, option-based compensation remains as an effective motivation and even becomes a more efficient incentive for CEO to take risk on R&D investment and firm focus.

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