CEO risk-taking incentives and socially irresponsible activities

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Abstract

This study examines the relationship between CEO risk-taking incentives, measured by the sensitivity of CEO wealth held in options to a change in stock return volatility or Vega, and socially irresponsible activities using a large sample of U.S. firms during the period 1992–2012. Our results for the period before the 2007 financial crisis suggest that CEO risk-taking incentives are positively related to socially irresponsible activities. In addition, we find that a firm's socially responsible actions may act as a moderator, strengthening the aforementioned relationship. The results after the 2007 financial crisis show no evidence of a significant relationship between CEO risk-taking incentives and socially irresponsible activities. This could be due to
the increased scrutiny regarding compensation packages and the increased role of reputational issues in the aftermath of the financial crisis. Our results suggest that risk-taking incentives embedded in the CEO compensation scheme have implications for corporate policies toward socially irresponsible activities.
Original languageEnglish
Pages (from-to)76-92
Number of pages17
JournalBritish Accounting Review
Volume50
Issue number1
Early online date19 May 2017
DOIs
Publication statusPublished - Jan 2018

Keywords

  • Executive compensation
  • CEO risk-taking incentives
  • Socially irresponsible activities

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