Managerial Incentives to Increase Risk Provided by Debt, Stock, and Options

Joshua D. Anderson () and John E. Core ()
Additional contact information
Joshua D. Anderson: Questrom School of Business, Boston University, Boston, Massachusetts 02215
John E. Core: MIT Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02142

Management Science, 2018, vol. 64, issue 9, 4408-4432

Abstract: We measure a manager’s risk-taking incentives as the total sensitivity of the manager’s debt, stock, and option holdings to firm volatility. We compare this measure with the option vega and with the relative measures used by the prior literature. Vega does not capture risk-taking incentives from managers’ stock and debt holdings and does not reflect the fact that employee options are warrants. The relative measures do not incorporate the sensitivity of options to volatility. Our new measure explains risk choices better than vega and the relative measures and should be useful for future research on managers’ risk choices.

Keywords: accounting; finance; corporate finance; investment; risk taking; incentives (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (18)

Downloads: (external link)
https://doi.org/10.1287/mnsc.2017.2811 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:64:y:2018:i:9:p:4408-4432

Access Statistics for this article

More articles in Management Science from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().