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The standard principal-agent model predicts that, ceteris paribus, a negative relation exists between firm risk and CEO incentives or pay-performance sensitivity. We examine how a CEO’s risk tolerance (captured by… Click to show full abstract
The standard principal-agent model predicts that, ceteris paribus, a negative relation exists between firm risk and CEO incentives or pay-performance sensitivity. We examine how a CEO’s risk tolerance (captured by national culture) affects pay-performance sensitivity using international data from 29 countries. We find that CEOs from countries with high (low) risk tolerance are associated with high (low) pay-performance sensitivity, suggesting that they require a low (high) risk premium. We contribute to the CEO compensation literature by introducing CEO risk tolerance, an overlooked factor, into CEO compensation contracts.
Journal Title: Journal of International Accounting Research
Year Published: 2023
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