getting them to think outside the circle corporate governance ceos external advice networks and firm performance this article contributes to the social networks literature by examining how corporate governance factors influence ceos external advice seeking behaviors we incorporate insights from social netwo

stock option repricing and its alternatives an empirical examination in this paper i examine the likelihood of ceo stock option repricing and its alternatives namely option grant stock grant and do nothing multinomial logit results suggest that firms reprice options to increase sensitivity of pay to stock price and to temper down sensitivity of pay to volatility moreover repricing firms are younger and more concentrated in industries where human capital is important finally i find no evidence that internal governance or executive conflicts of interest are relevant in explaining repricing my results indicate that repricing is motivated by incentive alignment and retention and not by agency cost considerations

a multiplicative model of optimal ceo incentives in market equilibrium this paper presents a unified theory of both the level and sensitivity of pay in competitive market equilibrium by embedding a moral hazard problem into a talent assignment model by considering multiplicative specifications for the ceo s utility and production functions we generate a number of different results from traditional additive models first both the ceo s low fractional ownership the jensen murphy incentives measure and its negative relationship with firm size can be quantitatively reconciled with optimal contracting and thus need not reflect rent extraction second the dollar change in wealth for a percentage change in firm value divided by annual pay is independent of firm size and therefore a desirable empirical measure of incentives third incentive pay is effective at solving agency problems with multiplicative impacts on firm value such as strategy choice however additive issues such as perk consumption are best addressed through direct monitoring jel d2 d3 g34 j3

ceo risk preferences and hedging decisions a multiyear analysis abstract theory and previous empirical studies suggest that ceo risk preferences affect hedging we challenge this idea in a 5 year time series setting by using inside debt i e ceo pension and deferred compensation and the ceo vega and ceo delta as proxies of ceo risk preferences and document that neither risk averse i e debt like compensation nor risk seeking i e convex compensation inducing ceo compensation packages influence corporate hedging moreover we find ceos who have more previous work experience and high job tenure to be positively related to hedging

why has u s inflation become harder to forecast we examine whether the u s rate of price inflation has become harder to forecast and to the extent that it has what changes in the inflation process have made it so the main finding is that the univariate inflation process is well described by an unobserved component trend cycle model with stochastic volatility or equivalently an integrated moving average process with time varying parameters this model explains a variety of recent univariate inflation forecasting puzzles and begins to explain some multivariate inflation forecasting puzzles as well

empirical evidence on the relation between stock option compensation and risk taking abstract we examine whether executive stock options esos provide managers with incentives to invest in risky projects for a sample of oil and gas producers we examine whether the coefficient of variation of future cash flows from exploration activity our proxy for exploration risk increases with the sensitivity of the value of the ceo s options to stock return volatility eso risk incentives both eso risk incentives and exploration risk are treated as endogenous variables by adopting a simultaneous equations approach we find evidence that eso risk incentives has a positive relation with future exploration risk taking additional tests indicate that eso risk incentives exhibits a negative relation with oil price hedging in a system of equations where eso risk incentives and hedging are allowed to be endogenously determined overall our results are consistent with esos providing managers with incentives to mitigate risk related incentive problems

marriage and managers attitudes to risk marital status can both reflect and affect individual preferences we explore the impact of marriage on corporate chief executive officers ceos and find that firms run by single ceos exhibit higher stock return volatility pursue more aggressive investment policies and do not respond to changes in idiosyncratic risk these effects are weaker for older ceos our findings continue to hold when we use variation in divorce laws across states to instrument for ceo marital status which supports the hypothesis that marriage itself drives choices rather than it just reflecting innate heterogeneity in preferences we explore various potential explanations for why single ceos may be less risk averse data as supplemental material are available at http dx doi org 10 1287 mnsc 2014 1926 this paper was accepted by wei jiang finance

trend fundamentals and exchange rate dynamics we estimate a multivariate unobserved components stochastic volatility model to explain the dynamics of a panel of six exchange rates against the us dollar the empirical model is based on the assumption that both countries monetary policy strategies may be well described by taylor rules with a time varying inflation target a time varying natural rate of unemployment and interest rate smoothing the estimates closely track major movements along with important time series properties of real and nominal exchange rates across all currencies considered the model generally outperforms a benchmark model that does not account for changes in trend inflation and trend unemployment authors abstract

the use of stock based pay for sorting an empirical analysis of compensation for new ceos examining stock based compensation for newly hired ceos this article finds that the sensitivity of stock based pay to performance is higher for new economy young and volatile firms of the components of stock based pay it is option grants that generate such variation across firms it also finds that this cross firm variation in pay performance sensitivity is more pronounced for the ceo s first year in office these findings support the view that firms use stock based pay to new ceos for sorting

exercise behavior valuation and the incentive effects of employee stock options abstract we use a large database on eso exercises to document characteristics of exercise behavior and calibrate a utility based model for measuring how differences in exercise behavior are manifested in option values and incentives option values and incentives computed from the model calibrations are compared to those computed from models used to value tradable options our analysis provides guidance to both academics and practitioners about how differences in exercise behavior and model choice affect measures of eso values and incentives and underscores the importance of gaining a thorough understanding of the underlying economic forces that affect the behavior of eso holders

too risky to hold the effect of downside risk accumulated equity wealth and firm performance on ceo equity reduction although the alignment effect of equity ownership is often studied with emphasis on changes in firm strategy the exposure of ceos firm specific wealth to firm risk is more easily controlled by changing their level of equity holdings than by changing firm strategic risk we rely on prospect theory and the behavioral theory of the firm to examine the antecedents of ceo equity reduction and investigate whether it serves to decouple ceo wealth from firm risk given its central role in loss avoidance we underline the effect of the firm s downside risk and distinguish the total loss potential on equity holdings from the loss potential due to firm specific factors allowing for own performance referents we also consider firm performance and the value of a ceo s equity holdings in the analysis based on a sample of 208 u s ceos for the years 1997 1999 we find empirical support for the role of downside risk and firm performance in ceo equity reductions implications on incentive alignment through equity ownership are presented

executive compensation and the cost of debt this study examines how different components of executive compensation affect the cost of debt we find that debt like and equity like pay components have differing effects an increase in defined benefit pensions is associated with lower bond yield spread while higher share holdings lead to higher spreads in addition we find that stock options have a mixed impact on the cost of debt whereas cash bonus has no significant impact overall our results indicate that corporate bondholders are fully aware of both risk taking and risk avoiding incentives created by various executive pay components

search sticky prices and inflation this paper examines equilibrium in a deflationary environment in a market with free entry where consumers search and firms set prices on individual units of the commodity prices attached to newly produced goods are continuously adjusted prices attached to previously produced goods can only be changed at a cost deflation cuts into the market power created by the need to search for the good thus consumers welfare is inverse u shaped in deflation

too much pay performance sensitivity abstract we examine the relation between pay performance sensitivity pps the convexity of managerial compensation vega and future stock risk and returns for a large sample of firms between 1992 and 2004 higher pps and vega are both associated with lower future stock returns part of this negative relation can be explained by risk averse managers decreasing equity risk in response to increases in pps and vega however even after correcting for lower future risk future stock returns are negatively associated with the magnitude of option sensitivity this finding is consistent with previous studies that link high option compensation to manager owner agency problems

a theory of ambiguity credibility and inflation under discretion and asymmetric information this paper develops a positive theory of credibility ambiguity and inflation under discretion and asymmetric information the monetary policymaker maximizes his own politically motivated objective function that is positively related to economic stimulation through monetary surprises and negatively related to monetary growth the relative importance he assigns to each target shifts stochastically through time his current preference trade off is known to him but not to the public when choosing the state contingent path of money growth for the present and the future the policymaker compares the benefits from current stimulation with the costs associated with higher future inflation expectations current monetary growth conveys information to the public about future money growth because there is persistence in the policymaker s objectives although expectations are rational information is imperfect because monetary control procedures are imprecise as a result the public cannot correctly distinguish persistent changes of emphasis on different policy objectives from transitory monetary control errors the public becomes aware of changes gradually by observing past monetary growth credibility is defined in terms of the speed with which the public recognizes changes in the objectives of the policymaker credibility is lower the noisier monetary control and the more stable the objectives of the policymaker looser monetary control and a higher degree of time preference on the part of the policymaker induce him to produce higher and more variable monetary growth when the policymaker is free to determine the accuracy of monetary control he does not always choose the most effective control available in spite of the fact that monetary surprises always have an expected value of zero the reason is that ambiguous control procedures enable the policymaker to generate positive surprises when he cares more than on average about economic stimulation he leaves the inevitable negative surprises for periods in which he cares more about inflation prevention this result provides an explanation for the fed s preference for ambiguity recently documented by goodfriend 1986 the policymaker is more likely to pick more ambiguous control procedures the more uncertain his objectives and the higher his time preference the paper also provides a theoretical underpinning for the well documented crosscountry positive correlation between the level and the variability of inflation

employee bargaining power inter firm competition and equity based compensation abstract we develop a model to illustrate that equity based compensation for non executive employees and product market decisions are related when the product market is competitive and employees have low bargaining power the unique equilibrium is for each firm s owners to offer equity based compensation to their employees in this setting equity based compensation leads to a lower wage rate which makes each firm more competitive with its rival however this unique equilibrium is a prisoner s dilemma for the firms original owners our results are consistent with several empirical regularities and provide predictions on when firms will offer equity based compensation to their employees

managerial incentives risk aversion and debt we investigate the risk choices of risk averse ceos following recent theoretical work we expect ceo risk aversion to be more pronounced in firms with high leverage or high default probability we find that the ceos of these firms reduce firm risk even in the presence of strong risk taking incentives our results are robust to controls for the sensitivity of ceo wealth to stock price changes firm risk determinants the endogenous feedback effects of firm risk on ceo incentives unobserved firm and market effects and debt governance the impact of ceo risk aversion is economically significant

the use of management control mechanisms to mitigate moral hazard in the decision to outsource using archival data from the u s passenger airline industry this study examines whether management control mechanisms aimed at mitigating moral hazard explain outsourcing decisions over and above transaction cost economics tce determinants documented in prior research consistent with tce theory we find that in house production efficiencies and our proxy for transaction risk i e deriving from transaction infrequency transaction complexity and relationship specific investments significantly explain the extent of outsourcing of aircraft maintenance we extend tce insights to show that incentive delta i e the sensitivity of ceo portfolio holdings to stock price changes strengthens the negative association between production efficiencies and outsourcing while incentive vega i e the sensitivity of ceo holdings to stock return volatility weakens the negative association between transaction risk and outsourcing monitoring strengthens the negative association between in house production efficiencies and outsourcing but has no effect on the transaction risk outsourcing relation the results suggest that the use of outsourcing to achieve cost savings is promoted through both incentive contracts and monitoring but outsourcing to achieve the desired risk level is promoted only through incentive contracts

does executive portfolio structure affect risk management ceo risk taking incentives and corporate derivatives usage abstract this paper extends the investigation of the effect of managerial motives on hedging policy i utilize a proxy variable that incorporates ceo incentives to increase risk relative to incentives to increase stock price the variable is directly measured using observed characteristics of ceo portfolios of stock and option holdings furthermore ceo risk taking incentives are modeled as a choice variable to eliminate the simultaneity bias of modeling risk taking incentives as an exogenous variable if modeled as a simultaneous system of equations a strong negative link between ceo risk taking incentives and the amount of derivative holdings exists this result is consistent with the notion that derivatives are used for hedging purposes both the characteristics of stock and option holdings are important in determining cross sectional differences in corporate derivative holdings

valuing executive stock options with endogenous departure abstract executive stock options differ from exchange traded options because of vesting and portability restrictions executive departure from the firm forces early exercise reducing the value of executive options current methodology calculates the option value by multiplying the black scholes option price by the departure probability this ignores the possibility that executive departure is less likely when stock price is high and thus is correlated with the stock price we show that this correlation implies a substantial increase in option values a similar situation occurs in performance based option packages where the actual number of options granted depends on stock performance

the volatility and price sensitivities of managerial stock option portfolios and corporate hedging we use estimates of the black scholes sensitivity of managers stock option portfolios to stock return volatility and the sensitivity of managers stock and stock option portfolios to stock price to test the relationship between managers risk preferences and hedging activities we find that as the sensitivity of managers stock and stock option portfolios to stock price increases firms tend to hedge more however as the sensitivity of managers stock option portfolios to stock return volatility increases firms tend to hedge less one of the agency costs associated with the corporate form of ownership comes from the risk aversion of the firm s managers the typical corporate manager has a significant portion of his or her wealth invested in the corporation both through portfolio holdings and the value of firm specific human capital as a result managers have an incentive to reduce firm risk more than may be desirable from the perspective of an unaffiliated diversified shareholder one way to mitigate managerial risk aversion is to provide the manager with contracts that have a payoff structure that is a convex function of the firm s stock price smith and stulz 1985 guay 1999 finds that stock options are an important way in which convexity is added to managers portfolios however as recognized by carpenter 2000 and lambert larcker and verrecchia 1991 stock options create two opposing effects on managerial incentives the first effect is sensitivity to stock return volatility due to the convex payoff structure of options the value of a manager s stock option portfolio increases with the volatility of the firm s stock returns this sensitivity to stock return volatility should ceteris paribus give the manager an incentive to take more risk the second effect is sensitivity to stock price this effect comes from the direct link between the payoff of an option and

discussion of ceo compensation and corporate risk taking evidence from a natural experiment abstract gormley matsa and milbourn in this issue examine the design and causal effects of ceos equity portfolio incentives on firm risk in a novel research setting in which certain firms experience a large exogenous shock that increases their left tail risk and reduces their investment opportunities gormley et al find that boards and ceos both make adjustments to ceos equity portfolios following the shock they also find that ceos with more convex equity portfolios i e vega prior to the shock reduce risk less following the shock despite certain measurement and identification concerns gormley et al is an innovative attempt to address an important and challenging research question partial identification and sensitivity analysis an important class of techniques that are well suited for providing causal inferences about gormley et al s and other important research questions that are impeded by endogeneity concerns

state ownership and market liberalization evidence from china s domestic m a market abstract we study how state ownership affects the post merger performance of chinese acquirers and find that state owned acquirers soes experience a significantly larger long term performance improvement following mergers compared to their non state owned nsoe counterparts when partitioning the sample period into acquisitions made prior to and following china s split share reform of 2005 we find that the post merger performance improvement of soe acquirers is largely attributed to the post reform period in which controlling shareholders converted their non tradable shares into tradable status our results are consistent with the interpretation that state intervention in the form of capital market liberalization and alleviation of governance problems combined with political connections and privileged access to financing may have a positive effect on m a performance that outweighs the inefficiency cost of state ownership in china

global factors and trend inflation abstract we develop an empirical model to study the influence of global factors in driving trend inflation and the inflation gap we apply our model to 7 developed economies and 21 emerging market economies our results suggest that while global factors can have a sizeable influence on the inflation gap they play only a marginal role in driving trend inflation much of the influence of global factors in the inflation gap may be reflecting commodity price shocks finally we find the effect of global factors to be greater in our sample of emerging market economies relative to the developed economies there is some evidence which suggest propagation mechanisms which may reflect institutional structures or policy choices can explain the greater role for global factors in driving trend inflation in emerging market economies

accounting conservatism and managerial risk taking corporate acquisitions abstract watts 2003 and ball and shivakumar 2005 argue that accounting conservatism decreases managerial incentives to make negative net present value investments i develop and test a new hypothesis that accounting conservatism is associated with managers making less risky investments i find that under more conservative accounting managers make less risky acquisitions and that firms with accounting based debt covenants drive this association this result is consistent with conservative firms avoiding risky investments because of the potential for large losses to trigger debt covenants conservatism reducing risk shifting can in part explain debt holders demand for conservative accounting

the relation between equity incentives and misreporting the role of risk taking incentives abstract prior research argues that a manager whose wealth is more sensitive to changes in the firm s stock price has a greater incentive to misreport however if the manager is risk averse and misreporting increases both equity values and equity risk the sensitivity of the manager s wealth to changes in stock price portfolio delta will have two countervailing incentive effects a positive reward effect and a negative risk effect in contrast the sensitivity of the manager s wealth to changes in risk portfolio vega will have an unambiguously positive incentive effect we show that jointly considering the incentive effects of both portfolio delta and portfolio vega substantially alters inferences reported in prior literature using both regression and matching designs and measuring misreporting using discretionary accruals restatements and enforcement actions we find strong evidence of a positive relation between vega and misreporting and that the incentives provided by vega subsume those of delta collectively our results suggest that equity portfolios provide managers with incentives to misreport when they make managers less averse to equity risk

the sensitivity of ceo wealth to equity risk an analysis of the magnitude and determinants abstract to control risk related incentive problems equity holders are expected to manage both the convexity and slope of the relation between firm performance and managers wealth i find stock options but not common stockholdings significantly increase the sensitivity of ceos wealth to equity risk cross sectionally this sensitivity is positively related to firms investment opportunities this result is consistent with managers receiving incentives to invest in risky projects when the potential loss from underinvestment in valuable risk increasing projects is greatest firms stock return volatility is positively related to the convexity provided to managers suggesting convex incentive schemes influence investing and financing decisions

modeling u s households demands for liquid wealth in an era of financial change money demand models overpredicted m2 growth in the united states from 1990 to 1993 the authors examine this overprediction using a model of households demands for liquid wealth the model is a dynamic generalization of the aids model of angus deaton and john muellbauer 1980 the authors find that the own price elasticity of money rose substantially after 1990 they also find important cross price elasticities of money with respect to other liquid financial assets notably with respect to mutual funds incorporating these and other features helps explain nearly 50 percent of the shortfall in m2 growth over the period in question

equity compensation and the sensitivity of research and development to financial market frictions abstract when financial market frictions exist executives may have to decide which investment activities to reduce when internal funds decrease expenditures on research and development r d may be particularly vulnerable because of the long term nature of innovative activity we find that equity compensation is associated with lower levels of firm r d expenditures rewarding executives to incur more risk has little effect on r d expenditures but rewarding executives for higher returns reduces r d expenditures and makes r d expenditures more sensitive to financial market frictions in contrast cash compensation reduces the sensitivity of r d expenditures to financial market frictions

executive compensation and the maturity structure of corporate debt executive compensation influences managerial risk preferences through executives portfolio sensitivities to changes in stock prices delta and stock return volatility vega large deltas discourage managerial risk taking while large vegas encourage risk taking theory suggests that short maturity debt mitigates agency costs of debt by constraining managerial risk preferences we posit and find evidence of a negative positive relation between ceo portfolio deltas vegas and short maturity debt we also find that short maturity debt mitigates the influence of vega and delta related incentives on bond yields overall our empirical evidence shows that short term debt mitigates agency costs of debt arising from compensation risk

the cost of capital and optimal financing policy in a dynamic setting abstract this paper revisits the modigliani miller propositions on the optimal financing policy and cost of capital in a dynamic setting in an environment without taxes and bankruptcy costs the results are generally consistent with the modigliani miller propositions 1 and 2 however the first proposition should be presented and interpreted more carefully as given firm characteristics there is only one optimal capital structure thus a firm s capital structure is relevant a relaxation of assumptions about either taxes or bankruptcy costs leads to conclusions that are generally different from those in modigliani and miller 1958 the model predicts that leverage and sales to capital ratios decrease but firm size and capital stock increase with the subjective discount factor of the firm s manager if there are taxes and bankruptcy costs the empirical analysis supports these predictions

do contracts make them care the impact of ceo compensation design on corporate social performance using the behavioral agency model we analyze how two compensation design characteristics pay performance sensitivity and duration of ceo compensation taking into account multiple vesting periods affect corporate social performance we find that the performance sensitivity of ceo pay is negatively associated with poor social performance but also negatively affects strong social performance these results suggest that pay performance sensitivity increases the relevance of potential negative consequences of poor social performance however the insurance benefits of strong social performance may also become less relevant with respect to the duration of ceo compensation we find that it reduces poor social performance this finding confirms arguments that a long term compensation time horizon increases the perceived threat that the negative effects of poor social performance will become visible with our findings we integrate behavioral agency theory with the traditional stakeholder views

a new model of inflation trend inflation and long run inflation expectations a knowledge of the level of trend inflation is key to many current policy decisions and several methods of estimating trend inflation exist this paper adds to the growing literature which uses survey based long run forecasts of inflation to estimate trend inflation we develop a bivariate model of inflation and long run forecasts of inflation which allows for the estimation of the link between trend inflation and the long run forecast thus our model allows for the possibilities that long run forecasts taken from surveys can be equated with trend inflation that the two are completely unrelated or anything in between by including stochastic volatility and time variation in coefficients it extends existing methods in empirically important ways we use our model with a variety of inflation measures and survey based forecasts for several countries we find that long run forecasts can provide substantial help in refining estimates and fitting and forecasting inflation the same evidence indicates it is less helpful to simply equate trend inflation with the long run forecasts

resolving the agency problems of external capital through options this paper investigates the role of stock options in resolving the agency problems of external capital as originally identified by jensen and meckling 1976 these problems are precipitated by managerial incentives a to consume excessive non pecuniary benefits or perquisites beyond the optimal level for sole ownership and b to engage in risk shifting in productive decisions so as to transfer wealth from external capital contributors these incentive problems can be resolved through a strategy that judiciously combines call and put options retained by the owner manager and external financiers respectively the resolution of the agency problems through this mechanism provides an economic rationale for the existence of managerial stock options and convertible debt the work by jensen and meckling 7 has brought more realism to the theory of the firm in their paper jm address agency problems in the context of a firm which is viewed as a nexus of contracts among various factors of production the contractual relationships involve incentive conflicts arising from the pursuit of self interest by limiting themselves to an entrepreneur or owner manager who retains complete control of the firm jm have demonstrated that financing through the issuance of common stock or debt to outsiders engenders costs these costs are precipitated in part by the manager s propensity to consume nonpecuniary benefits or perquisites perks by employing certain resources in excess of their optimal usage 1 and by his propensity to engage in high risk investment projects so as to transfer wealth from bondholders to stockholders 2

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

lower salaries and no options on the optimal structure of executive pay we estimate a standard principal agent model with constant relative risk aversion and lognormal stock prices for a sample of 598 us ceos the model is widely used in the compensation literature but it predicts that almost all of the ceos in our sample should hold no stock options instead ceos should have lower base salaries and receive additional shares in their companies for a typical value of relative risk aversion almost half of the ceos in our sample would be required to purchase additional stock in their companies from their private savings the model predicts contracts that would reduce average compensation costs by 20 while providing the same incentives and the same utility to ceos we investigate a number of extensions and modi cations of the standard model but nd none of them to be satisfactory we conclude that the standard principal agent model typically used in the literature cannot rationalize observed contracts one reason may be that executive pay contracts are suboptimal

do firms hedge in response to tax incentives there are two tax incentives for corporations to hedge to increase debt capacity and interest tax deductions and to reduce expected tax liability if the tax function is convex we test whether these incentives affect the extent of corporate hedging with derivatives using an explicit measure of tax function convexity we find no evidence that firms hedge in response to tax convexity our analysis does however indicate that firms hedge to increase debt capacity with increased tax benefits averaging 1 1 percent of firm value our results also indicate that firms hedge because of expected financial distress costs and firm size an increasing number of corporations use financial derivatives each year the international swaps and derivatives association reports that the notional value of outstanding otc swap contracts increased from 11 3 trillion in 1994 to more than 60 trillion by mid 2000 http 00www isda org this is interesting because financial theory tells us that corporate risk management enhances value only in the presence of costly market imperfections a number of empirical studies examine derivative holdings to identify which of the proposed theoretical incentives and imperfections lead to corporate hedging our paper adds to the hedging literature by testing whether corporations respond to two tax related incentives to hedge the incentive to reduce volatility thereby increasing debt capacity and the tax benefits of debt and the incentive to reduce expected tax liabilities by reducing the volatility of taxable income we also use a refined dependent variable to measure net

trend inflation indexation and inflation persistence in the new keynesian phillips curve purely forward looking versions of the new keynesian phillips curve nkpc generate too little inflation persistence some authors add ad hoc backward looking terms to address this shortcoming we hypothesize that inflation per sistence results mainly from variation in the long run trend component of inflation which we attribute to shifts in monetary policy we derive a version of the nkpc that incorporates a time varying inflation trend and examine whether it explains the dynamics of inflation when drift in trend inflation is taken into account a purely forward looking version of the model fits the data well and there is no need for backward looking components jel e12 e31 e52 in this paper we consider the extent to which guillermo calvo s 1983 model of nominal price rigidities can explain inflation dynamics without relying on arbitrary backward looking terms in its baseline formulation the calvo model leads to a purely forward looking new keynesian

do stock options overcome managerial risk aversion evidence from exercises of executive stock options we report that the probability that executives exercise options early decreases with the volatility of the underlying stock return we interpret this to mean that executives subjective option value increases with volatility and that option grants increase executives risk appetite further decomposition reveals that the results are most pronounced for idiosyncratic volatility consistent with our conjecture that executives believe they can better predict or influence the resolution of idiosyncratic uncertainty than systematic uncertainty and thus favor the former data are available at http dx doi org 10 1287 mnsc 2016 2495 this paper was accepted by wei jiang finance

the effect of risk on the ceo market this article presents a market equilibrium model of ceo assignment pay and incentives under risk aversion and moral hazard each of the three outcomes can be summarized by a single closed form equation in the presence of moral hazard assignment is distorted from positive assortative matching on firm size as firms with higher risk or disutility choose less talented ceos such firms also pay higher salaries in the cross section but economywide increases in risk or the disutility of being a ceo do not affect pay the strength of incentives depends only on the disutility of effort and is independent of risk and risk aversion if the ceo can affect firm risk incentives rise and are increasing in risk and risk aversion we calibrate the losses from various forms of poor corporate governance such as failures in monitoring and inefficiencies in ceo assignment jel g34 j33 this article presents a market equilibrium model of ceo assignment pay and incentives risk averse managers of different talents are hired in a competitive market by heterogeneous firms which vary in their size risk and level of effort required the level of pay drives the assignment of talent to firms the strength of incentives induces the efficient effort level and is determined by an optimal contracting approach our main contribution is to incorporate risk into a ceo market equilibrium in a tractable manner a large empirical literature has shown that risk is a firstorder determinant of compensation contracts demsetz and lehn 1985 garen 1994 core and guay 1999 oyer and schaefer 2004 peters 2009 peters and wagner 2009 but most theories assume risk neutrality this assumption is

ceo stock based compensation an empirical analysis of incentive intensity relative mix and economic determinants the use of stock based compensation for u s ceos has increased significantly throughout the 1990s research interest in particular on stock option compensation has similarly increased yet contradictory results create questions about the theoretical underpinnings therefore we revisit the controversy surrounding stock option awards and we further the understanding of restricted stock grants which have escaped similar research focus using a recent data set we obtain convincing empirical support for most theoretical predictions about stock option awards we also find that restricted stock due to its linear payoffs is relatively inefficient in inducing risk averse ceos to accept risky value increasing investment projects copyright 2000 by university of chicago press