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Do CEOs worry about being fired when making investment decisions?
The study highlights the classic agency problem, where CEOs may prioritize personal job security over shareholders' interests, particularly when facing high termination risk. Research by Chakraborty, Sheikh, and Subramanian reveals that CEOs under heightened termination risk tend to avoid risky investments, even when such projects could benefit shareholders. This behavior persists despite incentive mechanisms like stock options, which are designed to align managerial and shareholder interests. The study analyzes 820 CEO departures (1993–2000), finding that a 10% increase in termination risk correlates with a 7–13% decline in stock return volatility, indicating risk aversion. Additionally, compensation "convexity" (sensitivity of option value to risk) loses effectiveness when termination risk is high, as CEOs prioritize job security over potential rewards. The findings suggest that boards must balance compensation incentives with termination risk to prevent overly conservative decision-making. Ultimately, the study underscores the need for governance structures that mitigate unintended consequences of termination threats while encouraging value-maximizing risk-taking.
Ketersediaan
| Call Number | Location | Available |
|---|---|---|
| AMP2201 | PSB lt.dasar - Pascasarjana | 1 |
| Penerbit | Briarcliff Manor, NY: Academy of Management 2008 |
|---|---|
| Edisi | Vol. 22, No. 1, Feb., 2008 |
| Subjek | Corporate governance Investment decisions Executive compensation Risk-taking Behavior CEO Termination Risk shareholder interests compensation convexity |
| ISBN/ISSN | 15589080 |
| Klasifikasi | NONE |
| Deskripsi Fisik | 2 p. |
| Info Detail Spesifik | Academy of Management Perspectives |
| Other Version/Related | Tidak tersedia versi lain |
| Lampiran Berkas |