Executive Incentives and Corporate Decisions: The Risk Management Channel

Loading...
Thumbnail Image
Degree type
Doctor of Philosophy (PhD)
Graduate group
Applied Economics
Discipline
Subject
Executive Compensation
Corporate Governance
Risk Management
Insurance
Finance
Finance and Financial Management
Insurance
Labor Economics
Funder
Grant number
License
Copyright date
Distributor
Related resources
Contributor
Abstract

This paper provides evidence that insurance executives respond to their compensation incentives by adjusting observable risk-management policy variables – the reinsurance purchase decision, type of business conducted, and firm leverage. Executive incentives are modeled by the executive sensitivity of wealth to stock price (Delta) and stock volatility (Vega). Firms respond to increased executive incentives to bear risk by purchasing less reinsurance, but also conducting less business in long-tailed lines – a change which rewards the executive through increased market volatility. The cost of altering executive incentives to effect firm policy is much less than a similar change in firm structural variables.

Advisor
Greg Nini
Scott Harrington
John Core
Date of degree
2009-12-22
Date Range for Data Collection (Start Date)
Date Range for Data Collection (End Date)
Digital Object Identifier
Series name and number
Volume number
Issue number
Publisher
Publisher DOI
Journal Issue
Comments
Recommended citation