Are CEO stock option grants optimal? Evidence from family firms and non-family firms around the Sarbanes–Oxley Act

How did the Sarbanes–Oxley Act affect managerial incentives? Evidence from corporate acquisitions

“…Our paper makes several important contributions to the literature. First, we show that the documented decline in risk-taking activity post-SOX (Bargeron et al 2010;Gao and Zhang 2019;Hege et al 2021) did not come solely from changes in executive compensation structure (Chang et al 2012;Cohen et al 2013;Tang 2014) but can be explained by a change in the way executives respond to risk-taking incentives after the passage of the Act. For the pre-SOX period, we find a positive relation between managerial compensation incentives and post-acquisition changes in risk.…”

“…We exploit cross-sectional variation in executive compensation incentives and consider how executives respond to these incentives through changes in the riskiness of investment decisions surrounding SOX. In addition to the previously documented decline in compensation incentives (Chang et al 2012;Tang 2014) and risky investment (Bargeron et al 2010), we propose that managers respond less positively to risk-taking incentives through compensation contracts after the introduction of SOX. We expect that this diminished the previously documented positive relation between equity-based compensation and managerial incentives to undertake risky investment projects (Agrawal and Mandelker 1987;Datta et al 2001;Coles et al, 2006).…”

“…SOX is further associated with a change in the structure of managerial compensation incentives that leads managers to undertake risky investment projects. Both Chang et al (2012) and Tang (2014) report a decline in pay-performance sensitivity and the use of executive stock options post-SOX. Carter et al (2009) show that post-SOX, firms placed more weight on earnings in bonus contracts.…”

“…Since willful violation of SOX attracts criminal charges, corporate compliance and executive personal costs have increased (Bargeron et al 2010;Arping and Sautner 2013;Gao and Zhang 2019;Bloomfield 2021). SOX is also associated with a reduction in incentives to undertake risky investment projects (Carter et al 2009;Chang et al 2012;Cohen et al 2013;Tang 2014;Kwon et al 2019).…”

It's a family affair: How social identification influences family CEO compensation

“…Few studies of CEO compensation in family firms have integrated socio‐psychological arguments into their accounts of the determinants of CEO pay (Croci et al, 2012; Gallego & Larrain, 2012; Gomez‐Mejia et al, 2003; Tang, 2014), and none have explored such arguments in depth. Gomez‐Mejia et al (2003), for example, attributed a steward role to family CEOs, suggesting that they are more likely to be emotionally attached to their firms than their professional counterparts are.…”