Wealth Shocks and Executive Compensation: Evidence from CEO Divorce
To empirically test the impact of CEOs' outside wealth on their compensation, I use spousal divorce as a proxy for an exogenous, negative shock to a CEO's outside wealth. I hypothesize that this shock decreases a CEO's risk tolerance. I also expect that the board of directors respond...
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ndltd-arizona.edu-oai-arizona.openrepository.com-10150-1454002015-10-23T04:27:00Z Wealth Shocks and Executive Compensation: Evidence from CEO Divorce Neyland, Jordan Bradley Klasa, Sandy Litov, Lubomir Bates, Thomas Sepe, Simone Lamoureux, Christopher Gelbach, Jonah CEO Compensation Divorce Governance Risk To empirically test the impact of CEOs' outside wealth on their compensation, I use spousal divorce as a proxy for an exogenous, negative shock to a CEO's outside wealth. I hypothesize that this shock decreases a CEO's risk tolerance. I also expect that the board of directors responds to this decrease by raising the CEO's cash compensation and by increasing the sensitivity of the CEO's compensation to changes in firm value. I find that cash bonuses, restricted stock grants, and option grants increase following a CEO's divorce, consistent with boards reacting to changes in CEOs' outside wealth and risk incentives. I also find that firms' total risk and idiosyncratic risk significantly drop during the year of a CEO's divorce, consistent with a drop in the CEO's risk tolerance. Overconfident CEOs, who are more risk tolerant, do not receive the same increases in compensation following divorce. I find little support for the relation between divorce and compensation being endogenously determined by performance or by poor corporate governance. Overall, the results support predictions that the board of directors takes the CEO's wealth into account when setting compensation and that outside wealth impacts the CEO's risk preferences. 2011 Electronic Dissertation text http://hdl.handle.net/10150/145400 752261318 11449 en Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author. The University of Arizona. |
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en |
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CEO Compensation Divorce Governance Risk |
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CEO Compensation Divorce Governance Risk Neyland, Jordan Bradley Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
description |
To empirically test the impact of CEOs' outside wealth on their compensation, I use spousal divorce as a proxy for an exogenous, negative shock to a CEO's outside wealth. I hypothesize that this shock decreases a CEO's risk tolerance. I also expect that the board of directors responds to this decrease by raising the CEO's cash compensation and by increasing the sensitivity of the CEO's compensation to changes in firm value. I find that cash bonuses, restricted stock grants, and option grants increase following a CEO's divorce, consistent with boards reacting to changes in CEOs' outside wealth and risk incentives. I also find that firms' total risk and idiosyncratic risk significantly drop during the year of a CEO's divorce, consistent with a drop in the CEO's risk tolerance. Overconfident CEOs, who are more risk tolerant, do not receive the same increases in compensation following divorce. I find little support for the relation between divorce and compensation being endogenously determined by performance or by poor corporate governance. Overall, the results support predictions that the board of directors takes the CEO's wealth into account when setting compensation and that outside wealth impacts the CEO's risk preferences. |
author2 |
Klasa, Sandy |
author_facet |
Klasa, Sandy Neyland, Jordan Bradley |
author |
Neyland, Jordan Bradley |
author_sort |
Neyland, Jordan Bradley |
title |
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
title_short |
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
title_full |
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
title_fullStr |
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
title_full_unstemmed |
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce |
title_sort |
wealth shocks and executive compensation: evidence from ceo divorce |
publisher |
The University of Arizona. |
publishDate |
2011 |
url |
http://hdl.handle.net/10150/145400 |
work_keys_str_mv |
AT neylandjordanbradley wealthshocksandexecutivecompensationevidencefromceodivorce |
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1718096956007383040 |