Journal ArticleDOI
The Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and R&D Investment
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In this article, the authors use estimates of the sensitivities of managers' portfolios to stock return volatility and stock price to directly test the relationship between managerial incentives to bear risk and two important corporate decisions.Abstract:
In this study we use estimates of the sensitivities of managers’ portfolios to stock return volatility and stock price to directly test the relationship between managerial incentives to bear risk and two important corporate decisions. We find that as the sensitivity of managers’ stock option portfolios to stock return volatility increases firms tend to choose higher debt ratios and make higher levels of R&D investment. These results are even stronger in a subsample of firms with relatively low outside monitoring. For these firms, managerial incentives to bear risk play a particularly pivotal role in determining leverage and R&D investment.read more
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Managerial incentives and risk-taking ☆
TL;DR: This paper found that higher sensitivity of CEO wealth to stock volatility (vega) implements riskier policy choices, including relatively more investment in R&D, less investment in PPE, more focus, and higher leverage.
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Seeking Safety: The Relation between CEO Inside Debt Holdings and the Riskiness of Firm Investment and Financial Policies
TL;DR: The authors found a negative association between inside debt holdings and the volatility of future firm stock returns, R&D expenditures, and financial leverage and a positive association between CEO inside debt holders and the extent of diversification and asset liquidity.
Journal ArticleDOI
The Impact of Family Control on the Performance and Financial Characteristics of Family Versus Nonfamily Businesses in Japan: A Matched-Pair Investigation
TL;DR: In this article, the authors applied to the Japanese context a research methodology that has proven its worth in Western cases, and found better performance among family businesses in Japan, on the basis of data covering the years 1998 and 2003.
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CEO pay incentives and risk-taking: Evidence from bank acquisitions
TL;DR: The authors analyzed how the structure of executive compensation affects the risk choices made by bank CEOs for a sample of acquiring US banks and employed the Merton distance to default model to show that CEOs with higher pay-risk sensitivity engage in risk-inducing mergers.
Journal ArticleDOI
Executive Compensation and Business Policy Choices at U.S. Commercial Banks
TL;DR: This paper examined whether and how the terms of CEO compensation contracts at large commercial banks between 1994 and 2006 influenced, or were influenced by, the risky business policy decisions made by these firms.
References
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Journal ArticleDOI
Theory of the firm: Managerial behavior, agency costs and ownership structure
TL;DR: In this article, the authors draw on recent progress in the theory of property rights, agency, and finance to develop a theory of ownership structure for the firm, which casts new light on and has implications for a variety of issues in the professional and popular literature.
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Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers
TL;DR: In this paper, the benefits of debt in reducing agency costs of free cash flows, how debt can substitute for dividends, why diversification programs are more likely to generate losses than takeovers or expansion in the same line of business or liquidationmotivated takeovers, and why the factors generating takeover activity in such diverse activities as broadcasting and tobacco are similar to those in oil.
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Determinants of corporate borrowing
TL;DR: In this article, the authors predict that corporate borrowing is inversely related to the proportion of market value accounted for by real options and rationalize other aspects of corporate borrowing behavior, such as the practice of matching maturities of assets and debt liabilities.
Book
Theory of rational option pricing
TL;DR: In this paper, the authors deduced a set of restrictions on option pricing formulas from the assumption that investors prefer more to less, which are necessary conditions for a formula to be consistent with a rational pricing theory.
Journal ArticleDOI
Agency Problems and the Theory of the Firm
TL;DR: In this article, the authors explain how the separation of security ownership and control, typical of large corporations, can be an efficient form of economic organization, and set aside the presumption that a corporation has owners in any meaningful sense.