Executive compensation and risk: The case of internet firms

Dee, Carol Callaway; Lulseged, Ayalew; Nowlin, Tanya S.

doi:10.1016/j.jcorpfin.2004.12.002

Cited by 26 publications

(13 citation statements)

References 33 publications

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“…This result is consistent with several studies that have indicated that paying CEOs with stock options is likely to reduce CEOs' risk aversion (e.g. Dee et al, 2005). This study provides empirical support for the argument developed in this paper that stock-option compensation and board independence are complementary measures for enhancing boards' performance.…”

Section: The Influence Of Outside Directors' Stock-option Compensatiosupporting

confidence: 92%

The Influence of Outside Directors' Stock‐Option Compensation on Firms' R&D

Deutsch

2007

Corporate Governance

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Using a sample of S&P 1500 firms between 1997 and 2000, this paper examines the effects of outside directors' stock-option compensation on firms' R&D intensity. Results suggest that including stock options in outside directors' compensation enhances firms' R&D. Moreover, stock-option compensation moderates the relationship between board composition and R&D intensity. These results suggest that outside directors' compensation schemes do matter. The results also highlight the need to re-evaluate previous findings that addressed the effects of board composition on both firms' performance and strategic decisions. Copyright (c) 2007 The Author; Journal compilation (c) 2007 Blackwell Publishing Ltd.

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Section: The Influence Of Outside Directors' Stock-option Compensatiosupporting

confidence: 92%

The Influence of Outside Directors' Stock‐Option Compensation on Firms' R&D

Deutsch

2007

Corporate Governance

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“…Aggarwal and Samwick (1999) show that the sensitivity of managerial pay-performance declines with the increase of variance of firm performance for larger firms. Dee et al (2005) further show that the pay-performance sensitivity declines with the increase in risk for inherently high risk internet firms. Pay-for-performance is an ex-post compensation that rewards executives according to their performance, i.e., on the basis of managerial output.…”

Section: New Economy Vs Old Economymentioning

confidence: 73%

“…The risk incentives of ESOs on innovation in new-economy firms may differ from those in old-economy firms. For instance, Aggarwal and Samwick (1999) and Dee et al (2005) argue that incentive compensation is negatively related to the risk of large firms or internet firms. However, their mainly discusses the pay-performance sensitivity, in which executives are rewarded based on their ex-post performance.…”

Section: Introductionmentioning

confidence: 99%

Executive Stock Options and Corporate Innovative Activities

Chen

Chu

2008

SSRN Journal

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The financial literature demonstrates two opposite opinions regarding the incentive effects of executive stock options (ESOs) on managerial risk taking (such as innovative activities). The management literature shows that various corporate innovations are associated with different level of risk. By combining the financial theory and the management theory, we posit that ESOs provide managers incentives to undertake corporate innovative activities that are associated with different level of risk. We find that the incentive effects of ESOs are significantly and positively associated with corporate innovative activities, with or without taking into account of the endogeneity. In addition, the risk-taking incentives of ESOs in old economy firms are not as significant as those in new economy firms, somehow explaining why some prior studies question the incentive effects of ESOs on managerial risk taking.

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“…As Dee, Lulseged, and Nowlin () note that the interest‐alignment effect of compensation varies with changes in economic environment, the risk incentive effects of ESOs may also differ in different economic environments. The internet frenzy before 2000 stimulated intensive corporate innovation that seems to have greatly diminished after the burst of the bubble in 2000.…”

Section: Empirical Analysismentioning

confidence: 99%

The Effect of Executive Stock Options on Corporate Innovative Activities

Chen¹,

Chen²,

Chu³

2013

Financial Management

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This study investigates whether the implicit optionality of executive stock options (ESOs) induce managers to undertake innovative activities associated with various types of risk. We find ESO risk incentive (vega) to be positively correlated with all types of corporate innovations. We also find greater ESO risk incentive effects for the product‐related innovative activities that are associated more with systematic risk than idiosyncratic risk. Finally, we document the following pecking order for the ESO risk incentive effects: improved product, new product, alliance, and new research and development. Our results suggest that executives have more incentive to invest in projects with higher systematic risk.

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Executive compensation and risk: The case of internet firms

Cited by 26 publications

References 33 publications

The Influence of Outside Directors' Stock‐Option Compensation on Firms' R&D

The Influence of Outside Directors' Stock‐Option Compensation on Firms' R&D

Executive Stock Options and Corporate Innovative Activities

The Effect of Executive Stock Options on Corporate Innovative Activities

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