The causal effect of option pay on corporate risk management

By Tor-Erik Bakke, Hamed Mahmudi, Chitru S. Fernando, Jesus M. Salas. 2016

134 citations recorded by the source corpus.

This study provides strong evidence of a causal effect of risk-taking incentives provided by option compensation on corporate risk management. We utilize the passage of Financial Accounting Standard (FAS) 123R, which required firms to expense options, to investigate how chief executive officer option compensation affects the hedging behavior of oil and gas firms. Firms that did not expense options before FAS 123R significantly reduced option pay, which resulted in a large increase in their hedging intensity compared with firms that did not use options or expensed their options voluntarily prior to FAS 123R.

View Paper: https://www.semanticscholar.org/paper/cab87bd9cb6a62e55310713b62ce3ac50c5a5e3a

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Citations in the corpus

• Going to Haven? Corporate Social Responsibility and Tax Avoidance (2019, methodology): “14 See for example Bakke et al. (2016) and Bertrand and Mullainathan (2003) for similar implementations of difference-in-differences method. 15 Note that Huizinga and Voget (2009) also use SDC database to identify affiliates in tax implications of the parent–subsidiary relationship.”
• Managerial Short-Termism and Investment: Evidence from Accelerated Option Vesting* (2019, unknown): “This shift may have decreased executives’ risktaking incentives (Hayes, Lemmon, and Qiu, 2012; Bakke et al., 2016). Online Appendix Table IX, Panel A, confirms in Columns (1) and (2) that firms granted fewer new options relative to total new equity pay (New options/new equity pay) and less convex pa”