The Impact of CEOs’ Incentives for Risk-Taking or Risk-Aversion on Corporate Performance: Using CEO Vega and CEO Delta as Incentive Measures

Garas, Samy, Tee, Kienpin, and Lee, Chuo-Hsuan (2022) The Impact of CEOs’ Incentives for Risk-Taking or Risk-Aversion on Corporate Performance: Using CEO Vega and CEO Delta as Incentive Measures. Accountancy Business and the Public Interest, 21. pp. 1-20.

[img]
Preview
PDF (Published Version) - Published Version
Download (248kB) | Preview
View at Publisher Website: http://visar.csustan.edu/aaba/aabajourVo...
 
19


Abstract

This article has a two-fold purpose. First, we investigate whether the CEOs’ risk-taking incentives are associated with better concurrent firm performance. Second, we examine the impact of gender on the aforementioned relationship. We find solid empirical evidence that CEOs’ risk-aversion incentive, as represented by a higher CEO delta, can be linked to better concurrent firm performance such as return on assets (ROA) and Market-to-Book Value (MTB) ratio. By contrast, we find that the risk-taking incentive, as represented by CEO vega, has no significant impact on ROA, but has a significant impact on MTB ratio only among the group of CEOs with larger share ownerships. Furthermore, we research on the same incentives using only female CEOs in our sample. Our panel-data findings indicate that female CEOs on average possessed a lower CEO delta (low risk aversion) and a lower CEO vega (risk-taking incentive) in their compensation packages when compared with their male counterparts. Taken together, these two risk incentives; are linked to a lower concurrent ROA and MTB value. Our findings also indicate that the aforementioned positive relationship between CEOs’ risk-aversion incentive (as measured by CEO delta) and firm performance (as measured by ROA) are less pronounced when a CEO is female. This implies that a female CEO is less likely to increase the firm’s ROA relative to a male CEO, given the same sensitivity of personal wealth to stock price change (i.e., the same CEO delta).

Item ID: 75683
Item Type: Article (Research - C1)
ISSN: 1745-7718
Copyright Information: Before publication, all authors will be asked to assign the copyright to the journal. However, the authors retain the right to use the article or any part thereof free of charge in a printed collection of their works, collected writings, books, thesis, lecture notes, monographs and articles. The author(s) agree to confer all worldwide rights to the above work, including copyright, exclusively to the Association for Accountancy & Business Affairs (the Publisher).
Date Deposited: 07 Sep 2022 03:15
FoR Codes: 35 COMMERCE, MANAGEMENT, TOURISM AND SERVICES > 3501 Accounting, auditing and accountability > 350101 Accounting theory and standards @ 100%
SEO Codes: 11 COMMERCIAL SERVICES AND TOURISM > 1102 Financial services > 110201 Finance services @ 100%
Downloads: Total: 19
Last 12 Months: 19
More Statistics

Actions (Repository Staff Only)

Item Control Page Item Control Page