Foreign competition and CEO risk-incentive compensation

Tor-Erik Bakke, Felix Zhiyu Feng, Hamed Mahmudi and Caroline H. Zhu

Journal of Corporate Finance, 2022, vol. 76, issue C

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.

Keywords: Executive compensation; Risk-incentive compensation; Foreign competition (search for similar items in EconPapers)
JEL-codes: F13 F16 G32 J33 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:76:y:2022:i:c:s0929119922000840

DOI: 10.1016/j.jcorpfin.2022.102241

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