Journal of Corporate Finance Vol. 76 2022
Foreign competition and CEO risk-incentive compensation
Abstract
How do firms modify CEO risk-incentive compensation in response to increased foreign competition? Theoretically we show the answer is ambiguous: increased competition can result in firms either increasing or decreasing the CEO's risk-taking incentives. Empirically using a quasi-natural experiment, tariff cuts resulting from important trade deals, we find evidence that in response to increases in foreign competition firms adjust CEO risk-incentive compensation downwards – a result that is more pronounced for firms with less risk-averse CEOs. These findings suggest that more intense foreign competition results in managers voluntarily taking on more risk, and firms therefore reduce the convexity in managers' compensation.
- DOI
- 10.1016/j.jcorpfin.2022.102241
- Volume
- 76
- Pages
- 102241
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref