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Contribution Details
| Type | Journal Article |
| Scope | Discipline-based scholarship |
| Title | Managerial incentives to take asset risk |
| Organization Unit | |
| Authors |
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| Item Subtype | Original Work |
| Refereed | Yes |
| Status | Published in final form |
| Language |
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| Journal Title | Journal of Corporate Finance |
| Publisher | Elsevier |
| Geographical Reach | international |
| ISSN | 0929-1199 |
| Volume | 65 |
| Page Range | 101758 |
| Date | 2020 |
| Abstract Text | We argue that incentives to take equity risk (”equity incentives”) only partially capture incentives to take asset risk (“asset incentives”). This is because leverage, while central to the theory of risk-shifting, is not explicitly considered by equity incentives. Employing measures of asset incentives that account for leverage, we find that asset risk-taking incentives can be large compared to incentives to increase firm value. Stock holdings can induce substantial risk-taking incentives, contrary to the assumption that only stock options drive risk-taking. Finally, asset incentives help explain asset risk-taking of U.S. financial institutions before the 2007/08 crisis. |
| Related URLs | |
| Digital Object Identifier | 10.1016/j.jcorpfin.2020.101758 |
| Other Identification Number | merlin-id:20011 |
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