Abstract
AbstractResearch question/issueWe examine how chief executive officers' (CEOs) innate risk aversion influences the size and structure of their compensation contracts. In so doing, we estimate managerial risk aversion based on the Big Five personality traits—openness, conscientiousness, extraversion, agreeableness, and neuroticism—inferred using IBM's Personality Insights service.Research findings/insightsWe provide evidence that executives' inherent risk aversion is related to their compensation structure. Contrary to agency theory predictions, we find that more risk‐averse CEOs receive more cash‐based and less equity‐based compensation but receive lower total compensation. This relationship is moderated by differences in firms' resource advantages.Theoretical/academic implicationsDespite the theoretical prediction that managerial risk aversion is a key factor determining the structure of executives' compensation contracts, there is limited empirical evidence on whether firms adjust the components of compensation based on CEOs' risk preferences. Our results help us better understand the interplay between CEO personality and executive compensation.Practitioner/policy implicationsThis study offers important implications for organizations in that knowledge about executives' inherent risk aversion is important and relevant for designing effective compensation contracts.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
