Golden Parachutes, Takeover Incentive, and Risk-taking
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Author/Creator ORCID
Date
2013-06-09
Type of Work
Department
Finance & Economics
Program
Finance & Economics
Citation of Original Publication
Chen, D. & Rose, M. J., Golden Parachutes, Takeover Incentive, and Risk-Taking (2013). Midwest Finance Association 2013 Annual Meeting Paper. http://dx.doi.org/10.2139/ssrn.2140088
Rights
Public Domain Mark 1.0
Abstract
We examine the relations between golden parachutes (GPs), pay-performance sensitivity (delta), and managerial risk-taking. We find an insignificant effect of GPs, but a negative and significant interaction of GPs with delta, on risk-taking. These results are consistent with the “takeover incentive hypothesis,” an original proposition stating that GPs influence risk-taking through the incentive of a CEO with a GP to accept a takeover, as well as delta’s role in affecting the weight of the CEO’s incentive to maximize the expected takeover-associated equity portfolio wealth. The findings do not support the proposition that GPs influence risk-taking through an insurance effect.