How do powerful CEOs view corporate risk-taking? Evidence from the CEO pay slice (CPS)

Pandej Chintrakarn, Pornsit Jiraporn, Shenghui Tong

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

Abstract

We explore the role of powerful CEOs on the extent of risk-taking, using Bebchuk, Cremers and Peyer’s (2011) CEO pay slice (CPS). Based on more than 12,000 observations over 20 years (1992–2012), our results reveal a nonmonotonic association. In particular, relatively less powerful CEOs exhibit risk aversion, resulting in less risky strategies. However, when the CEO has his power consolidated beyond a certain point, he is less likely to compromise with other executives, leading to less moderate decisions and more risky strategies. We estimate that the CEO has to wield considerable power, that is, around the 75th percentile of CPS, before significantly more risk-taking is observed. Finally, we show that our results are unlikely vulnerable to endogeneity.

Original languageEnglish (US)
Pages (from-to)104-109
Number of pages6
JournalApplied Economics Letters
Volume22
Issue number2
DOIs
StatePublished - Jan 22 2015

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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