Accurate, Focused Research on Law, Technology and Knowledge Discovery Since 2002

Managerial Performance Incentives and Firm Risk During Economic Expansions and Recessions

Raviv, Alon and Savaser, Tanseli and Sisli Ciamarra, Elif, Managerial Performance Incentives and Firm Risk During Economic Expansions and Recessions (August 6, 2014). Available for download at SSRN: http://ssrn.com/abstract=2476964

In this paper, we argue that the relationship between managerial pay-for-performance incentives and risk taking is procyclical. We study the relationship between incentives provided by stock-based compensation and firm risk for the U.S. non-financial corporations over the two business cycles between 1992 and 2009. We show that a given level of pay-for-performance incentives results in significantly lower firm risk when the economy is in a downturn. We attribute this finding to the increased employment risk during macroeconomic downturns.”

Sorry, comments are closed for this post.