Managerial risk-taking behavior and equity-based compensation☆

Information asymmetry and capital structure: Evidence from regulation FD

“…A difference-in-differences design is commonly used in the studies of regulatory changes (e.g., Bertrand & Mullainathan, 2003;Low, 2009). Since I am interested in the cross-sectional changes in capital structure due to information asymmetry, I include the level of information asymmetry as the third differencing variable.…”

“…In the main analysis, I use a difference-in-differences method to control for time specific effects. This design is commonly used in the studies of regulatory changes (e.g., Low, 2009;Altamuro & Beatty, 2010). Since I am interested in the cross-sectional change in capital structure due to information asymmetry, I am essentially using a difference-in-difference-in-differences model, where the third differencing variable is the level of information asymmetry.…”

Investor pricing of CEO equity incentives

“…Table 4 reports regression results with variable r avg (the firm-specific ex ante equity risk premium) as the dependent variable. As noted by Low (2009) and discussed previously, in 1995 an exogenous increase in takeover protection (following a Delaware Supreme Court ruling) lowered firm risk for Delaware incorporated firms. In turn, these firms responded to the increased takeover protection by providing managers with greater equity incentives to promote risk-taking.…”

“…6 As pointed out by Daines (2001), regulatory changes can have an impact on firm values and returns as well as the structure of executive compensation. First, Low (2009) finds that following the 1995 Delaware Supreme Court ruling that resulted in greater takeover protection, managers reduced firm risk by turning down risk-increasing (albeit positive NPV) projects. In response, firms increased CEO equity incentives to mitigate the risk aversion.…”

What determines the allocation of managerial ownership within firms? Evidence from investment management firms

“…[17], [18], and [41] estimate structural models of compensation and risk taking, and find that higher equity compensation results in higher risk taking. [35] uses changes to takeover protection laws in Delaware as a natural experiment and finds a positive relation between managerial ownership and discretionary risk taking. Our work differs from these prior studies in several ways.…”