Header

UZH-Logo

Maintenance Infos

Managerial Incentives to Take Asset Risk


Chesney, Marc; Stromberg, Jacob; Wagner, Alexander (2019). Managerial Incentives to Take Asset Risk. Swiss Finance Institute Research Paper 10-18, University of Zurich.

Abstract

We argue that incentives to take equity risk ("equity incentives") only partially capture incentives to take asset risk ("asset incentives"). This is because leverage, while central to the theory of risk-shifting, is not explicitly considered by equity incentives. Employing measures of asset incentives that account for leverage, we find that asset risk-taking incentives can be large compared to incentives to increase firm value. Moreover, stock holdings can induce substantial risk-taking incentives, qualifying common beliefs regarding the central role of stock options.Finally, asset incentives help explain asset risk-taking of U.S. financial institutions before the 2007/08 crisis.

Abstract

We argue that incentives to take equity risk ("equity incentives") only partially capture incentives to take asset risk ("asset incentives"). This is because leverage, while central to the theory of risk-shifting, is not explicitly considered by equity incentives. Employing measures of asset incentives that account for leverage, we find that asset risk-taking incentives can be large compared to incentives to increase firm value. Moreover, stock holdings can induce substantial risk-taking incentives, qualifying common beliefs regarding the central role of stock options.Finally, asset incentives help explain asset risk-taking of U.S. financial institutions before the 2007/08 crisis.

Statistics

Downloads

3 downloads since deposited on 29 Jan 2020
3 downloads since 12 months
Detailed statistics

Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
Language:English
Date:2019
Deposited On:29 Jan 2020 11:29
Last Modified:29 Jan 2020 11:48
Series Name:Swiss Finance Institute Research Paper
Number of Pages:59
OA Status:Green
Free access at:Official URL. An embargo period may apply.
Official URL:http://dx.doi.org/10.2139/ssrn.1595343
Other Identification Number:merlin-id:7256

Download

Green Open Access

Download PDF  'Managerial Incentives to Take Asset Risk'.
Preview
Content: Published Version
Filetype: PDF
Size: 732kB