Taking Stock of Corporate Risk-Taking

Boards need a greater awareness of how compensation affects decision-making.

The relationship between equity incentives for C-level executives and company performance has received enormous attention due to the cost to shareholders of the compensation awarded to top executives. An often neglected — but potentially more important — question is whether equity incentives influence executives’ risk-taking in ways that are detrimental to the company.

In a recent study, we undertook an in-depth analysis of the relationship between CEO equity incentives and strategic risk decisions in the life sciences sector, a sector in which executives typically ...

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