Dual Ownership and Risk-taking Incentives in Managerial Compensation

56 Pages Posted: 30 Jul 2019 Last revised: 3 Nov 2020

See all articles by Tao Chen

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance

Li Zhang

Nanyang Technological University (NTU)

Qifei Zhu

Nanyang Business School, Nanyang Technological University

Date Written: July 26, 2019

Abstract

This paper studies how managerial compensation is shaped by the risk preference of shareholders. Firms with a large ownership held by "dual holders'' -- institutional investors that simultaneously hold equity and bonds of the company -- choose a less risk-inducing compensation structure. Exploiting financial institution mergers that create dual holders for portfolio companies, we identify a causal link between dual ownership and CEO compensation policies. Mutual fund proxy voting data suggest that shareholder voting is an important channel for dual holders to implement less convex contracts.

Keywords: Managerial risk-taking, Option-based compensation, Shareholder-creditor conflict, Dual ownership

JEL Classification: G32, G34, J33, M41

Suggested Citation

Chen, Tao and Zhang, Li and Zhu, Qifei, Dual Ownership and Risk-taking Incentives in Managerial Compensation (July 26, 2019). Available at SSRN: https://ssrn.com/abstract=3427030 or http://dx.doi.org/10.2139/ssrn.3427030

Tao Chen

Nanyang Technological University (NTU) - Division of Banking & Finance ( email )

S3-B1A-08, Nanyang Avenue
Singapore, 639798
Singapore

Li Zhang

Nanyang Technological University (NTU) ( email )

S3 B2-A28 Nanyang Avenue
Singapore, 639798
Singapore

Qifei Zhu (Contact Author)

Nanyang Business School, Nanyang Technological University ( email )

Singapore, 639798
Singapore

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
276
Abstract Views
1,576
rank
133,520
PlumX Metrics