How do powerful CEOs view corporate risk-taking? Evidence from the CEO pay slice (CPS)

We explore the role of powerful CEOs on the extent of risk-taking, using Bebchuk, Cremers and Peyer's (2011) CEO pay slice (CPS). Based on more than 12,000 observations over 20 years (1992-2012), our results reveal a nonmonotonic association. In particular, relatively less powerful CEOs exhibit...

Full description

Saved in:
Bibliographic Details
Published in:Applied economics letters 2015-01, Vol.22 (2), p.104-109
Main Authors: Chintrakarn, Pandej, Jiraporn, Pornsit, Tong, Shenghui
Format: Article
Language:English
Subjects:
Applied economics
Business management
CEO pay slice
CEO power
Chief executive officers
Economic analysis
Executive compensation
Power
powerful CEOs
Risk aversion
Risk management
risk-taking
Studies
Citations: Items that this one cites
Items that cite this one
Online Access:Get full text
Tags: Add Tag
No Tags, Be the first to tag this record!
Description
Summary:We explore the role of powerful CEOs on the extent of risk-taking, using Bebchuk, Cremers and Peyer's (2011) CEO pay slice (CPS). Based on more than 12,000 observations over 20 years (1992-2012), our results reveal a nonmonotonic association. In particular, relatively less powerful CEOs exhibit risk aversion, resulting in less risky strategies. However, when the CEO has his power consolidated beyond a certain point, he is less likely to compromise with other executives, leading to less moderate decisions and more risky strategies. We estimate that the CEO has to wield considerable power, that is, around the 75th percentile of CPS, before significantly more risk-taking is observed. Finally, we show that our results are unlikely vulnerable to endogeneity.
ISSN:1350-4851
1466-4291
DOI:10.1080/13504851.2014.927565