Abstract
We develop and test the hypothesis that …rms’opacity induces increased risk sharing by managers, in particular by taking more risk in executive compensation contracts. We test this hypothesis in a manner robust to errorsin-variables bias and reverse-causality by using institutional trading as an instrument for …rms’opacity. Consistent with the hypothesis, we …nd a positive relation between pay-performance sensitivity and measures of the opacity of …nancial reporting and stock prices. Our …ndings suggest that institutional trading can act as a substitute for risky executive compensation by limiting opacity.
Sign-in/Register to access full text options 
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.
