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UID:6c72ddd1a317b259a9278f40ce287c03
CATEGORIES:Seminars
CREATED:20170418T181938
SUMMARY:Lunch Seminar: Andrew Ellul - Indiana University’s Kelley School of Business
DESCRIPTION;ENCODING=QUOTED-PRINTABLE:Labor Unemployment Risk and CEO Incentive Compensation\nAbstract:\n We inve
 stigate the impact of workers’ exposure to unemployment risk on the design 
 of CEO incentive compensation. Through its impact on risk-taking activities
 , option-based compensation is likely to also influence unemployment risk w
 hich is internalized by the firm. Exploiting state-level changes in unemplo
 yment insurance benefits as a source of variation in the unemployment costs
  faced by workers, we find that, after unemployment insurance benefits incr
 ease, boards provide managers with more stock option grants that result in 
 more convexity payoffs. This behavior is consistent with the view that CEO’
 s risk-taking incentives are amplified by the board to take advantage of lo
 wer costs associated with unemployment risk. The increase in convexity payo
 ff structures is stronger when CEO wealth is tied closely to firm performan
 ce, more pronounced in labor-intensive industries, and attenuated by the st
 rength of unionization. The increase in the convexity payoff from option-ba
 sed compensation induces managers to increase the riskiness of investments 
 and leverage. These results suggest that firms respond to unemployment risk
  by changing their risk taking behavior, and one channel through which they
  do so is executive compensation.\n
DTSTAMP:20260403T203122Z
DTSTART:20160708T130000Z
DTEND:20160708T140000Z
SEQUENCE:0
TRANSP:OPAQUE
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