How do Quasi-Random Option Grants Affect CEO Risk-Taking? / Kelly Shue, Richard Townsend.

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Shue, Kelly

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w23091.Publication details: Cambridge, Mass. National Bureau of Economic Research 2017.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multi-year compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 2.8-4.2 percent increase in equity volatility. This increase in risk is driven largely by increased leverage.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w23091 (Browse shelf(Opens below))	Not For Loan

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January 2017.

We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multi-year compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 2.8-4.2 percent increase in equity volatility. This increase in risk is driven largely by increased leverage.