Executive Incentives and Corporate Risk Taking

Abstract

Risk-taking is a fundamental driving force for long-term sustainable economic growth, can corporate risk-taking be enhanced through executive incentives and how to adjust the level of corporate risk-taking? This paper utilizes data from 1886 Shanghai and Shenzhen A-share listed companies from 2010 to 2021, and conducts an empirical analysis by using fixed-effects model panel regression. This paper compares the effects of compensation incentives, equity incentives, and the simultaneous implementation of both incentives on the level of corporate risk-taking, and finds that equity incentives, as a long-term incentive, can significantly enhance corporate risk-taking compared to compensation incentives and the simultaneous implementation of both incentives. Further analysis reveals that equity incentives increase risk-taking by affecting selling expenses, but have no significant effect on administrative expenses and operating costs. Therefore, effective incentives can bring real benefits and create substantial value for enterprises. This paper provides a theoretical reference for the strategic planning and sustainable development of listed companies.