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An analysis of the association between firm risk, executive share options and accounting performance: some Australian evidence

Hutchinson, Marion R. (2003) An analysis of the association between firm risk, executive share options and accounting performance: some Australian evidence. Review of Accounting and Finance, 2(3), pp. 48-71.

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Abstract

This paper examines whether the financial performance of the firm is associated with the risk-taking propensity of executives, which is inferred from the structure of their share option portfolio. The objective of this paper is to determine if executives have greater risk bearing preferences when they have more share options than shares in their firm. In turn, executives' risk-taking preferences suggest that these decision-makers adopt value-increasing strategies. The results of this study support this notion. The results of the study of 182 Australian firms demonstrate that the negative relationship between firm risk and firm performance is weaker when executives hold a higher proportion of share options than shares in their investment in the firm. These results hold implications for executives' compensation contracts. That is, executives who share in their firms' risk via share options are more likely to undertake risky activities with high-expected performance outcome.

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ID Code: 13273
Item Type: Journal Article
Additional Information: For more information, please refer to the journal's website (see hypertext link) or contact the author.
Keywords: Firm risk, share, options, firm performance
DOI: 10.1108/eb027012
ISSN: 1475-7702
Divisions: Current > QUT Faculties and Divisions > QUT Business School
Copyright Owner: Copyright 2003 Emerald
Deposited On: 09 Apr 2008
Last Modified: 29 Feb 2012 23:43

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