 Inside directors, risk aversion, and firm performanceArun D. Upadhyay, Rahul Bhargava, Sheri Faircloth and Hongchao Zeng Review of Financial Economics, 2017, vol. 32, issue C, 64-74 Abstract: Prior literature provides mixed evidence on managerial risk aversion. Using a sample of 1737 large US firms from 1996 to 2005, we find a negative association between the insider ratio and firm risk. Upon further analysis, we show that firms with a greater insider ratio are also likely to have more conservative CEO compensation and investment policies. Analysis of CEO compensation policies indicates that firms with a greater insider ratio offer lower equity based compensation, lower vega and lower total compensation to their CEOs. Also, firms with a greater insider ratio tend to invest more in tangible assets such as plant and equipment and have lower intangible investments. Consistent with these boards instituting conservative policies, we find that firms with a greater insider ratio perform better when they operate in highly volatile environments. Overall, this study suggests that high-insider boards are more conservative in policy initiation and that such boards are valuable in firms with greater operating uncertainties. Keywords: Inside directors; Corporate governance; Firm risk; CEO compensation; Investment policy; Firm performance; Operating volatility (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:32:y:2017:i:c:p:64-74 DOI: 10.1016/j.rfe.2016.12.001 Access Statistics for this article Review of Financial Economics is currently edited by T. K. Mukherjee and G. Whitney More articles in Review of Financial Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.