The relationship between equity-based compensation and managerial risk taking: Evidence from China

Yi Ting Huang, Ming-Cheng Wu, Szu Lang Liao

Research output: Contribution to journalArticle

6 Citations (Scopus)

Abstract

The authors analyze the impact of equity-based compensation on managerial risk-taking behavior in Chinese listed firms from January 2006 to July 2011. They find that greater risk-taking incentives lead executives to invest more in research and development (R&D) projects and less in capital expenditures. Greater managerial risk-taking incentive increases firm focus. Managerial risk-taking incentives have positive effects on firms' leverage. Overall, increasing the sensitivity of chief executive officers' portfolio value to stock return volatility helps incentivize executives to work harder, as sharing gains and losses with shareholders aligns the interests of executives and shareholders. In addition, the results indicate that state control of firms has a negative effect on R&D investment, and this suggests that state-controlled firms should take more initiative to innovate.

Original languageEnglish
Pages (from-to)107-125
Number of pages19
JournalEmerging Markets Finance and Trade
Volume49
Issue numberSUPPL2
DOIs
Publication statusPublished - 2013 Jul 26

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Risk taking
Equity
China
Incentives
Shareholders
Risk-taking behavior
Chief executive officer
Leverage
R&D projects
Stock return volatility
Capital expenditures

All Science Journal Classification (ASJC) codes

  • Finance
  • Economics, Econometrics and Finance(all)

Cite this

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The relationship between equity-based compensation and managerial risk taking : Evidence from China. / Huang, Yi Ting; Wu, Ming-Cheng; Liao, Szu Lang.

In: Emerging Markets Finance and Trade, Vol. 49, No. SUPPL2, 26.07.2013, p. 107-125.

Research output: Contribution to journalArticle

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