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CEO Inside Debt and Risk Taking: Evidence From Property–Liability Insurance Firms
Milidonis, Andreas, Takeshi Nishikawa and Jeungbo Shim
Journal of Risk and Insurance,
Publication year: 2017
We examine the incentive effects of CEO inside debt holdings (pensions and deferred compensation) on risk taking using the sample of U.S. publicly traded property–liability insurers.
To represent managerial risk taking, we employ value at risk (VaR) and expected shortfall (ES).
We also estimate firm default risk, equity volatilities, and insurance-related risk as alternative measures of risk taking.
We find that there is a significant and negative relationship between CEO inside debt holdings and risk-taking behavior.
Results suggest that the structure of executive debt-like compensation could be a potential method of reducing managers’ risk-taking incentives.