Trade‐off Between Risk and Incentives: Evidence from New‐ and Old‐Economy Firms

dc.contributor.author Tebourbi, Imen
dc.date.accessioned 2020-10-14T06:02:10Z
dc.date.available 2020-10-14T06:02:10Z
dc.date.copyright 2016
dc.date.issued 2016
dc.description This article is not available at CUD collection. The version of scholarly record of this article is published in International Journal of Corporate Accounting & Finance (2016), available online at: https://doi.org/10.1002/jcaf.22122 en_US
dc.description.abstract The sensitivity of managerial compensation to the firm's risk is a controversial issue. While some articles find evidence supporting the agency theory that predicts a negative relationship between pay‐performance sensitivity and risk, others support the managerial ownership that predicts a positive relationship between these factors. This article reconciles these theories and provides evidence that these two theories are not conflicting, when tested properly, using industries risk characteristics. In this articled, we distinguish between new‐ and old‐economy industries, and demonstrate that managerial ownership theory applies to new‐economy firms, which are high‐tech firms that operate in more uncertain environments, whereas the agency theory applies to old‐economy firms that operate in more traditional industries. We further control for the size effect and find a positive relationship between pay‐performance sensitivity and risk for medium and large size new‐economy firms. Furthermore, we find that high‐tech companies increased their CEOs noncash compensation dramatically during the high‐tech market crash between 2000 and 2002 to cushion the fall in their CEOs wealth in the company. This caused CEOs pay‐performance sensitivity to risk to become negatively related to their firms' risk during that period. © 2016 Wiley Periodicals, Inc. en_US
dc.identifier.citation Tebourbi, I. (2016), Trade‐off Between Risk and Incentives: Evidence from New‐ and Old‐Economy Firms. Journal of Corporate Accounting & Finance, 27(2), 53-71. https://doi.org/10.1002/jcaf.22122 en_US
dc.identifier.issn 1044-8136
dc.identifier.uri https://doi.org/10.1002/jcaf.22122
dc.identifier.uri http://hdl.handle.net/20.500.12519/265
dc.language.iso en en_US
dc.publisher John Wiley and Sons en_US
dc.relation Author Affiliation : Dr. Imen Tebourbi, Assistant Professor of Finance at Canadian University in Dubai
dc.relation.ispartofseries Journal of Corporate Accounting & Finance;Volume 27, Issue 2
dc.rights License to reuse the abstract has been secured from John Wiley and Sons and Copyright Clearance Center.
dc.rights.holder Copyright : © 2016 Wiley Periodicals, Inc.
dc.rights.uri https://s100.copyright.com/CustomerAdmin/PLF.jsp?ref=8dcafb8f-ebeb-472f-b480-e356a3d59a28
dc.subject Executive compensation en_US
dc.subject Business enterprises en_US
dc.subject Chief executive officers en_US
dc.subject Probability theory en_US
dc.subject Wages en_US
dc.title Trade‐off Between Risk and Incentives: Evidence from New‐ and Old‐Economy Firms en_US
dc.type Article en_US
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