A Dual Agency View of Board Compensation: The Joint Effects of Outside Director and CEO Stock Options on Firm Risk

Item Type Journal paper
Abstract

This paper contributes to multiple agency theory by examining how the compensation schemes awarded to outside directors and the CEO jointly affect firm-level risk taking. Using data of the S&P 1500 firms from 1997 to 2006, we find support for earlier arguments that providing the CEO, the outside directors, or both with stock options increases risk taking. More importantly, we find that compensating outside directors with stock options has significantly stronger effects than CEO stock options. Finally, contrary to what one would expect, we find that these effects are mutually substituting; that is, if both the outside directors and the CEO are provided with stock option compensation, outside directors' incentives weaken the effect of the CEO's incentives on firms' risk taking. Copyright © 2010 John Wiley & Sons, Ltd.

Authors Deutsch, Yuval; Keil, Thomas & Laamanen, Tomi
Journal or Publication Title Strategic Management Journal
Language English
Keywords multiple agency theory; compensation; governance; outside directors; risk taking
Subjects business studies
HSG Classification contribution to scientific community
Refereed Yes
Date February 2011
Publisher Wiley-Blackwell
Place of Publication New York
Volume 32
Number 2
Page Range 212-227
Number of Pages 16
ISSN 0143-2095
ISSN-Digital 1097-0266
Publisher DOI 10.1002/smj.876
Depositing User Prof. Dr. Tomi Laamanen
Date Deposited 25 Jan 2013 15:18
Last Modified 23 Aug 2016 11:15
URI: https://www.alexandria.unisg.ch/publications/219925

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Citation

Deutsch, Yuval; Keil, Thomas & Laamanen, Tomi (2011) A Dual Agency View of Board Compensation: The Joint Effects of Outside Director and CEO Stock Options on Firm Risk. Strategic Management Journal, 32 (2). 212-227. ISSN 0143-2095

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https://www.alexandria.unisg.ch/id/eprint/219925
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