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CEO Incentives and firm risk: in the context of cross-listing

Lennartsson, William LU and Ljungdahl, Harley LU (2019) BUSN79 20191
Department of Business Administration
Abstract
This research aims to investigate the relation of CEO compensation, especially how
the sensitivity of CEO wealth to stock return volatility (vega), but also how the sensitivity of
CEO wealth to stock price (delta) affects the risk of the firm. Moreover, these relations are
investigated in the context of cross-listing to examine whether there are differences between US-only listed firms and those that are dual listed. This is performed by applying theories such as agency theory, CEO compensation, cross-listing, investment myopia (short-termism), moral-hazard and contract theory.

The paper concludes that CEO compensation incentives have an effect on firm risk. Vega expresses a positive and significant relation implying that the... (More)
This research aims to investigate the relation of CEO compensation, especially how
the sensitivity of CEO wealth to stock return volatility (vega), but also how the sensitivity of
CEO wealth to stock price (delta) affects the risk of the firm. Moreover, these relations are
investigated in the context of cross-listing to examine whether there are differences between US-only listed firms and those that are dual listed. This is performed by applying theories such as agency theory, CEO compensation, cross-listing, investment myopia (short-termism), moral-hazard and contract theory.

The paper concludes that CEO compensation incentives have an effect on firm risk. Vega expresses a positive and significant relation implying that the convexity of CEOs compensation structure increases firm risk. Delta demonstrates negative relation towards firm risk implying higher risk-aversion. Option compensation incentivizes CEOs to increase firm risk, as its value is dependent on the volatility of the firm. Cash compensation and CEO ownership displays a negative relationship with firm risk but non-significant. The findings also suggest that there are no to minimal differences depending on the listing situation. (Less)
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author
Lennartsson, William LU and Ljungdahl, Harley LU
supervisor
organization
alternative title
- Evidence from the S&P 500
course
BUSN79 20191
year
type
H1 - Master's Degree (One Year)
subject
keywords
CEO compensation, CEO incentives, Stock options, Firm risk, Black-Scholes, Delta, Vega, Agency Theory
language
English
id
8990426
date added to LUP
2019-09-30 14:14:30
date last changed
2019-09-30 14:14:30
@misc{8990426,
  abstract     = {{This research aims to investigate the relation of CEO compensation, especially how
the sensitivity of CEO wealth to stock return volatility (vega), but also how the sensitivity of
CEO wealth to stock price (delta) affects the risk of the firm. Moreover, these relations are
investigated in the context of cross-listing to examine whether there are differences between US-only listed firms and those that are dual listed. This is performed by applying theories such as agency theory, CEO compensation, cross-listing, investment myopia (short-termism), moral-hazard and contract theory. 

The paper concludes that CEO compensation incentives have an effect on firm risk. Vega expresses a positive and significant relation implying that the convexity of CEOs compensation structure increases firm risk. Delta demonstrates negative relation towards firm risk implying higher risk-aversion. Option compensation incentivizes CEOs to increase firm risk, as its value is dependent on the volatility of the firm. Cash compensation and CEO ownership displays a negative relationship with firm risk but non-significant. The findings also suggest that there are no to minimal differences depending on the listing situation.}},
  author       = {{Lennartsson, William and Ljungdahl, Harley}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{CEO Incentives and firm risk: in the context of cross-listing}},
  year         = {{2019}},
}