Journal Article

A dual agency view of board compensation: the joint effects of outside director and CEO stock options on firm risk

Keil, Thomas, Laamanen, Tomi, Deutsch, Yuval

2011

Overview

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.

• Publisher: John Wiley & Sons, Ltd,John Wiley & Sons,Wiley,Wiley Periodicals Inc
• Subject: 1997-2006 / Agency theory / Aktienoption / Board of directors / Business management / Business organization / Business risks / Business strategies / Business structures / Chief executive officers / Chief executives / Compensation / Corporate governance / Corporate strategies / Directors / Economic theory / Executive compensation / governance / Incentives / Leadership / Management research / Management techniques / Managervergütung / multiple agency theory / Organizational analysis / Outside directors / Principal-agent models / Principal-agent theory / Prinzipal-Agent-Theorie / Risikopräferenz / Risk assessment / Risk aversion / Risk behavior / Risk taking / Schätzung / Senior management / Stock options / Studies / USA / Vorstand