Corporate Risk: CEO Overconfidence and Incentive Compensation

Unrestrained chief execs

Strategic Direction ◽

10.1108/sd-10-2020-0178 ◽

2020 ◽

Vol 36 (12) ◽

pp. 33-34

Keyword(s):

Case Studies ◽

Design Methodology ◽

Reading Time ◽

Cutting Edge ◽

Incentive Compensation ◽

Content Type ◽

Pertinent Information ◽

Corporate Risk ◽

Practical Implications

Purpose This paper aims to review the latest management developments across the globe and pinpoint practical implications from cutting-edge research and case studies. Design/methodology/approach This briefing is prepared by an independent writer who adds their own impartial comments and places the articles in context. Findings Overconfident CEOs are more likely to push organizations towards unacceptably high levels of corporate risk when given high incentive compensation. Originality/value The briefing saves busy executives, strategists and researchers hours of reading time by selecting only the very best, most pertinent information and presenting it in a condensed and easy-to-digest format.

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Corporate risk: CEO overconfidence and incentive compensation

Managerial Finance ◽

10.1108/mf-05-2020-0278 ◽

2020 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Tom Aabo ◽

Nicholai Theodor Hvistendahl ◽

Jacob Kring

Keyword(s):

Design Methodology ◽

Positive Association ◽

Incentive Compensation ◽

Practical Reasons ◽

Content Type ◽

Financial Firms ◽

The Individual ◽

Ceo Selection ◽

Corporate Risk ◽

Practical Implications

PurposeThe purpose of this study is to investigate the association between corporate risk and the interaction between CEO incentive compensation and CEO overconfidence.Design/methodology/approachThis empirical study performs random and fixed effect (FE) regression analysis. It uses option-implied measures of CEO overconfidence.FindingsThe authors contribute to the existing literature by showing (1) that the positive association between high CEO incentive compensation and corporate risk only exists in the sphere of overconfident CEOs and (2) that the positive association between overconfident CEOs and corporate risk only exists in the sphere of high CEO incentive compensation. The authors show that the combination of high CEO incentive compensation and CEO overconfidence is associated with an increase in corporate risk of approximately 6% while the individual effects are for all practical reasons negligible. The results imply that only the combination of high CEO incentive compensation and CEO overconfidence is associated with a significantly elevated level of corporate risk.Research limitations/implicationsThe findings are based on S&P 1500 non-financial firms in the period 2007–2016.Practical implicationsThe findings have important implications in terms of CEO selection and compensation.Originality/valueThis study provides empirical evidence on the importance of the dual presence of high CEO incentive compensation and CEO overconfidence for corporate risk. The previous literature has primarily investigated these phenomena in isolation.

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Determinants of Corporate Risk Disclosure Practice: The Case of Islamic Banks in Gulf Cooperation Council Region

The Journal of Muamalat and Islamic Finance Research ◽

10.33102/jmifr.v15i1.99 ◽

2018 ◽

Vol 15 (1) ◽

pp. 16-38 ◽

Cited By ~ 3

Author(s):

Samir Srairi

Keyword(s):

United Arab Emirates ◽

Composite Index ◽

Gulf Cooperation Council ◽

Risk Information ◽

Rate Of Return ◽

Islamic Banks ◽

Risk Disclosure ◽

Gulf Region ◽

Corporate Risk ◽

Level Of Risk

The paper develops a framework to explore the risk disclosure practices of 29 Islamic banks operating in the Gulf Cooperation Council countries over the period of 2013-2016 and examines the potential factors which might be affecting risk disclosure. To analyze the level of risk disclosure, the paper develops a composite index by using the content analysis technique. We also employ OLS technique to examine factors affecting Islamic banks’ risk disclosure. The results indicate a very high difference in risk disclosure between countries. Only two countries, the United Arab Emirates and Bahrain, have a higher level of risk disclosure. The findings also suggest that reporting on some risk disclosure types especially displaced commercial risk and rate of return risk is very low. The regression results show that Islamic banks with a stronger set of corporate governance mechanisms and an active Shariah board appear to disclose more risk information. Other factors that influence risk disclosure practices of Islamic banks are bank size, leverage, cross-border listings and the level of political and civil regression. The study recommends that Islamic banks have to revise their communication strategies and provide more risk information related to rate of return risk and display commercial risk. In addition, GCC regulators should establish risk disclosure regulations which have to become mandatory for all Islamic banks. To the best of our knowledge, the paper provides the first analysis related to the determinants of corporate risk disclosures of Islamic banks in the Arab Gulf region.

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