CEO Inside Debt and Risk Taking: Evidence From Property–Liability Insurance Firms

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Milidonis, Andreas, Takeshi Nishikawa and Jeungbo Shim
Journal of Risk and Insurance, 86, 451-477.
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.