Managerial Performance Incentives and Firm Risk during Economic Expansions and Recessions*
We argue that the relationship between managerial pay-for-performance incentives and risk taking is procyclical. We study the relationship between incentives provided by stock-based compensation and rm risk for U.S. non- nancial corporations over the two business cycles between 1992 and 2009. We show that a given level of pay-for-performance incentives results in signi cantly lower rm risk when the economy is in a downturn. The documented procyclical relationship between incentives and risk taking is consistent with state-dependent risk aversion. Our ndings contribute to the literature on the depres- sive e¤ects of performance incentives on rm risk by documenting the importance of the interaction between performance incentives and risk aversion.
Introduction 1. Alternative Views of PAYG as a Social Institution 2. Re-engineering PAYG: The Controversy over the Notional Defind Contribution Reforms 3. The Conventional Interpretation of a Fully Funded Scheme and Capital Theory 4. The Transition from PAYG to FF Schemes 5. The Controversy over the Social Security Surplus 6. The Classical-Keynesian Macroeconomics of Pension Reforms in Closed and Open Economies 7. Classical and Neoclassical Perspectives on the Welfare State and Pensions 8. The Viability of an Ageing Society: A Classical Exploration 9. Summary of the Main Arguments References Index.