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Does Option Compensation Increase Managerial Risk Appetite?
Open accessAbstract
This paper solves the dynamic investment problem of a risk averse manager compensated with a call option on the assets he controls. Under the manager's optimal policy, the option ends up either deep in or deep out of the money. As the asset value goes to zero, volatility goes to infinity. However, the option compensation does not strictly lead to greater risk seeking. Sometimes, the manager's optimal volatility is less with the option than it would be if he were trading his own account. Furthermore, giving the manager more options causes him to reduce volatility.
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Citations
Cited by
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Hartzell, J. C., & Starks, L. T. (2000) · SSRN Electronic Journal · doi:10.2139/ssrn.236592 · Cited by 632
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Brown, S. J., Goetzmann, W. N., & Park, J. (2001) · The Journal of Finance · doi:10.1111/0022-1082.00392 · Cited by 474
Lower Salaries and No Options? On the Optimal Structure of Executive Pay
DITTMANN, I., & MAUG, E. (2007) · The Journal of Finance · doi:10.1111/j.1540-6261.2007.01208.x · Cited by 357
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Liu, Y., & Mauer, D. C. (2011) · Journal of Financial Economics · doi:10.1016/j.jfineco.2011.05.008 · Cited by 325
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Spiegel, M., & Zhang, H. (2013) · Journal of Financial Economics · doi:10.1016/j.jfineco.2012.05.018 · Cited by 182
Metadata
- Authors
- Carpenter, J. N.
- Venue
- The Journal of Finance
- Publisher
- Wiley
- Published
- 2000-10
- Volume
- 55
- Issue
- 5
- Pages
- 2311-2331
- ISSN
- 0022-1082 (ISSN-L)
- 1540-6261
- OpenAlex
- W2133907450
- Cited by
- 926
- References
- 0
- FWCI
- 36.43
- Type
- journal article
- Language
- en
- Open access
- green
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Bibliographic data: Semantic Scholar, OpenAlex, Crossref.
Contains information from the Semantic Scholar Academic Graph Datasets, made available under the ODC Attribution License (ODC-BY 1.0).
Semantic Scholar’s data is described in: Kinney, R., et al. (2023). The Semantic Scholar Open Data Platform. arXiv:2301.10140.
