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Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times

Domenico Rocco Cambrera, Stefano Colonnello, Giuliano Curatola, Giulia Fantini Orcid Logo

SAFE Working Paper, Volume: 160

Swansea University Author: Giulia Fantini Orcid Logo

Abstract

We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm's profitability. By looking at the correlation between the CEO's return on these plans and the firm's stock return, we show that deferred compensation is to a large extent in...

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Published in: SAFE Working Paper
Published: 2017
Online Access: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884600
URI: https://cronfa.swan.ac.uk/Record/cronfa50377
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spelling 2019-05-15T12:05:47.8741931 v2 50377 2019-05-15 Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times 290e83934e79a0a29aec6575e0f82262 0000-0001-6923-0929 Giulia Fantini Giulia Fantini true false 2019-05-15 BAF We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm's profitability. By looking at the correlation between the CEO's return on these plans and the firm's stock return, we show that deferred compensation is to a large extent invested in the company equity in good times and divested from it in bad times. The divestment from company equity in bad times arguably reflects CEOs' incentive to “abandon” the firm and to invest in alternative instruments to preserve the value of their deferred compensation plans. This result suggests that the incentive alignment effects of deferred compensation crucially depend on the firm's health status. Working paper SAFE Working Paper 160 31 12 2017 2017-12-31 https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884600 COLLEGE NANME Accounting and Finance COLLEGE CODE BAF Swansea University 2019-05-15T12:05:47.8741931 2019-05-15T11:59:52.1345474 Faculty of Humanities and Social Sciences School of Management - Accounting and Finance Domenico Rocco Cambrera 1 Stefano Colonnello 2 Giuliano Curatola 3 Giulia Fantini 0000-0001-6923-0929 4
title Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
spellingShingle Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
Giulia Fantini
title_short Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
title_full Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
title_fullStr Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
title_full_unstemmed Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
title_sort Abandon Ship: Deferred Compensation and Risk-Taking Incentives in Bad Times
author_id_str_mv 290e83934e79a0a29aec6575e0f82262
author_id_fullname_str_mv 290e83934e79a0a29aec6575e0f82262_***_Giulia Fantini
author Giulia Fantini
author2 Domenico Rocco Cambrera
Stefano Colonnello
Giuliano Curatola
Giulia Fantini
format Working paper
container_title SAFE Working Paper
container_volume 160
publishDate 2017
institution Swansea University
college_str Faculty of Humanities and Social Sciences
hierarchytype
hierarchy_top_id facultyofhumanitiesandsocialsciences
hierarchy_top_title Faculty of Humanities and Social Sciences
hierarchy_parent_id facultyofhumanitiesandsocialsciences
hierarchy_parent_title Faculty of Humanities and Social Sciences
department_str School of Management - Accounting and Finance{{{_:::_}}}Faculty of Humanities and Social Sciences{{{_:::_}}}School of Management - Accounting and Finance
url https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2884600
document_store_str 0
active_str 0
description We study how US chief executive officers (CEOs) invest their deferred compensation plans depending on the firm's profitability. By looking at the correlation between the CEO's return on these plans and the firm's stock return, we show that deferred compensation is to a large extent invested in the company equity in good times and divested from it in bad times. The divestment from company equity in bad times arguably reflects CEOs' incentive to “abandon” the firm and to invest in alternative instruments to preserve the value of their deferred compensation plans. This result suggests that the incentive alignment effects of deferred compensation crucially depend on the firm's health status.
published_date 2017-12-31T04:01:48Z
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score 11.013619

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