University of Cyprus
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Managerial Incentives, Risk Aversion, and Debt.
Milidonis, Andreas, and Konstantinos Stathopoulos.
Journal of Financial and Quantitative Analysis 49 (02): 453-481.
Publication year: 2014
Our results challenge the common assumption that the provision of convex payoffs to managers always increases their appetite for risk.
We find empirical evidence that risk-averse CEOs reduce firm risk even in the presence of strong risk taking incentives.
We posit that managerial career concerns enhance managerial CEO risk aversion.
CEOs in highly levered firms or firms with high default probability behave more conservatively than CEOs with lower leverage or lower default probabilities.