New academic research suggests public company executives might be more likely to take on heavier loads of risk when their compensation is based more on stock options than outright stock awards.
Options may represent a form of equity compensation, but the value proposition is just different enough that executives might be incentivized to take on more risk for the company to realize greater value from their option awards, says an emerging academic study to appear in a journal of the American Accounting Association. The study examines the role of equity-based holdings, such as stock, compared with stock options in determining what kinds of incentives CEOs might have to smooth over earnings so as to reduce the volatility of reported earnings.
