Golden Parachutes, Takeover Probability, and Risk-Taking
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2011
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Citation of Original Publication
Chen, D., & Rose, M. Midwest Finance Association 2013 Annual Meeting, "Golden Parachutes, Takeover Probability, and Risk-Taking," Midwest Finance Association, Chicago, IL. (2013).
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Abstract
This paper is the first to examine the relationships among golden parachutes (GPs), CEO compensation incentives, and managerial risk-taking. GPs are positively associated with risktaking, but only when controlling for the surprisingly negative interactions of GPs with CEO pay-volatility sensitivity (vega) and with pay-performance sensitivity (delta). These results appear consistent with the takeover probability hypothesis that a GP indicates a higher probability that a firm will be acquired, which increases the divergence between the CEO’s incentives as a manager and as an equity owner. The hypothesis that these results are due to CEO entrenchment is not supported.