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Reining in excessive risk-taking by executives: the effect of accountability

Lefebvre, M. and Vieider, F. M. (2012) Reining in excessive risk-taking by executives: the effect of accountability. Theory and Decision, 75 (4). pp. 497-517.

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Performance-contingent compensation by means of stock options may induce risk-taking in agents that is excessive from the point of view of the company or the shareholders. We test whether increasing shareholder control may be an effective checking mechanism to rein in such excessive risk-taking. We thus tell one group of experimental CEOs that they may have to justify their decision-making processes in front of their shareholders. This indeed reduces risk-taking and increases the performance of the companies they manage. Implications are discussed.

Item Type:Article
Divisions:Arts, Humanities and Social Science > School of Politics, Economics and International Relations > Economics
ID Code:54868
Uncontrolled Keywords:accountability, D03, Economic Theory, Executive compensation, G28, G32, Game Theory, Economics, Social and Behav. Sciences, Game Theory/Mathematical Methods, Incentives, J33, L22, Operations Research/Decision Theory, risk-taking, Stock options

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