Does size affect the relation between option compensation and managerial risk taking? Evidence from Canadian listed companies

Atreya Chakraborty, Lucia Silva Gao and Shahbaz Sheikh

International Journal of Finance & Economics, 2019, vol. 24, issue 1, 20-32

Abstract: We examine the effect of CEO option compensation on firm risk in Canadian firms listed on the S&P/TSX index. Results show that there is a robust size effect. Option compensation has a positive and significant effect on firm risk only in small firms and no significant effect in large firms. Moreover, option compensation has no significant effect on firm risk in cross‐listed firms, but within the sample of cross‐listed firms option compensation has a positive and significant effect in small firms only. Overall, our results suggest that CEO compensation is more effective in encouraging risk taking in small Canadian firms.

Date: 2019
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