Dynamic Environment, Tournament Incentive and State-owned Listed Firms Risk Taking

Abstract

This paper constructs the theoretical framework of dynamic environment, tournament incentive and firms risk taking based on tournament theory and contingency theory. Treating environment as a contingency factor, measuring tournament incentives as the pay gap between executives at different levels, utilizing 2SLS estimation methodology, we find that the tournament incentive compensation system will stimulate state-owned listed firms executives risk taking behavior, and in the circumstances of dynamic environment, the tournament incentive will trigger executives over risk taking tendency for the more complicated environment and over confidence. The theoretical analysis and empirical evidences of this study will provide enlightenment and references for the reform and regulation of state-owned listed firms compensation system.