Moderating Effect of Compensation Policy on the Relationship Between CEO'S Personal Traits and Corporate Risk

Student: Yachmeneva Ekaterina

Faculty: Faculty of Economics, Management, and Business Informatics

Educational Programme: Finance (Master)

Final Grade: 10

Year of Graduation: 2020

In this study we combined contract theory and upper-echelon theory to reveal the moderation effect of CEOs’ compensation on the link between CEOs’ personal traits and corporate risk. The sample used in the research comprises 170 traded companies from Great Britain between 2008 and 2015. By testing fixed effects models, we find that a higher share of options in compensation package of CEOs aged 55-64 makes them decrease the level of corporate risk while CEOs aged 45-54 increase corporate risk. An increase in the share of bonuses in the remuneration structure of managers has the opposite effect on the relationship between these age groups of CEOs and risk. The link between overconfidence and corporate risk is positively moderated by bonuses share and negatively by options share.

Full text (added May 15, 2020)

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