Do US Insurance Firms Offer the “Wrong” Incentives to Their Executives?

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Milidonis, Andreas, and Konstantinos Stathopoulos.
Journal of Risk and Insurance, 78 (3): 643-672.
Publication year: 2011
  • We examine the relation between executive compensation and market-implied default risk for listed US insurance firms from 1992 to 2007.
  • Insurance default risk is not affected by managers’ share-based and long-term incentive-based compensation.
  • Default risk is affected by increases in previous year’s stock option-based compensation.
  • Result is likely driven by option-based compensation, which induces managerial risk-taking behavior.