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| Author: | Guay, W. R. |
| Title: | The sensitivity of CEO wealth to equity risk: an analysis of the magnitude and determinants |
| Journal: | Journal of Financial Economics
1999 : JUL, VOL. 53:1, p. 43-71 |
| Index terms: | Managers Pay Stock markets Investments |
| Language: | eng |
| Abstract: | To control risk-related incentive problems, equity holders are expected to manage both the convexity and slope of the relation btw. firm performance and managers' wealth. In the paper it is found stock options, but not common stockholdings, significantly to increase the sensitivity of CEOs' wealth to equity risk. Result is consistent with managers receiving incentives to invest in risky projects when the potential loss from under-investment in valuable risk-increasing projects is greatest. Firms' stock-return volatility is positively related to the convexity provided to managers, suggesting convex incentive schemes influence investing and financing decisions. |
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