A Dual Agency View of Board Compensation: The Joint Effects of Outside Director and CEO Stock Options on Firm Risk
Journal
Strategic Management Journal
ISSN
0143-2095
ISSN-Digital
1097-0266
Type
journal article
Date Issued
2011-02
Author(s)
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.
Language
English
Keywords
multiple agency theory
compensation
governance
outside directors
risk taking
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Wiley-Blackwell
Publisher place
New York
Volume
32
Number
2
Start page
212
End page
227
Pages
16
Subject(s)
Division(s)
Eprints ID
219925