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dc.contributor.authorDittmann, Ingolf
dc.contributor.authorYu, Ko-Chia
dc.contributor.authorZhang, Danielle
dc.date.accessioned2017-10-20T07:41:04Z
dc.date.available2017-10-20T07:41:04Z
dc.date.issued2017
dc.identifier.citationReview of Finance, 2017, 21(5), 1805-1846nb_NO
dc.identifier.issn1572-3097
dc.identifier.issn1875-824x
dc.identifier.urihttp://hdl.handle.net/11250/2461164
dc.descriptionAs the lead article in this issue the article is made free of charge on the OUP website, even to non-subscribers. https://academic.oup.com/rofnb_NO
dc.description.abstractWe consider a model in which shareholders provide a risk-averse CEO with risk-taking incentives in addition to effort incentives. We show that the optimal contract protects the CEO from losses for bad outcomes and is convex for medium outcomes and concave for good outcomes. We calibrate the model to data on 1,707 CEOs and show that it explains observed contracts much better than the standard model without risk-taking incentives. When we apply the model to contracts that consist of base salary, stock, and options, the results suggest that options should be issued in the money. Our model also helps us rationalize the universal use of at-the-money options when the tax code is taken into account. Moreover, we propose a new way of measuring risk-taking incentives in which the expected value added to the firm is traded off against the additional risk a CEO has to bear.nb_NO
dc.language.isoengnb_NO
dc.publisherOxford University Pressnb_NO
dc.titleHow important are risk-taking incentives in executive compensation?nb_NO
dc.typeJournal articlenb_NO
dc.typePeer reviewednb_NO
dc.source.journalReview of Financenb_NO
dc.identifier.doihttps://doi.org/10.1093/rof/rfx019
dc.description.localcode2, OAnb_NO


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