Abstract
Most large U.S. public firms have adopted executive stock ownership requirements ('SORs') in recent years. Compared to CEOs already in compliance, CEOs not in compliance at SOR adoption subsequently increase stock holdings, exposing them to more company-specific risk, which may provide a risk-reducing incentive and diminish their subjective valuation of firm equity. Using changes in state capital gains tax rates as an instrument, we find that these CEOs reduce firm idiosyncratic risk, but not market risk, through investment allocations and MA reduce earnings volatility and financial leverage; and receive increased compensation. A placebo test further addresses endogeneity.
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