Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions

Ettore Croci and Dimitris Petmezas

Journal of Corporate Finance, 2015, vol. 32, issue C, 1-23

Abstract: This paper examines the effect of risk-taking incentives on acquisition investments. We find that CEOs with risk-taking incentives are more likely to invest in acquisitions. Economically, an inter-quartile range increase in vega translates into an approximately 4.22% enhancement in acquisition investments, consistent with the theory that risk-taking incentives induce CEOs to undertake investments. Importantly, the positive relation between vega and acquisitions is confined only to non-overconfident CEO subgroup. Further, corporate governance does not generally affect the association between vega and acquisition investments. Finally, vega is positively related to bidder announcement returns.

Keywords: Executive compensation; Managerial incentives; Risk-taking; Mergers and acquisitions; Overconfidence (search for similar items in EconPapers)
JEL-codes: G34 J33 M12 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (31)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:32:y:2015:i:c:p:1-23

DOI: 10.1016/j.jcorpfin.2015.03.001

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