This thesis studies the effects of share-based pay on managerial risk-taking. At first, the
relationship between managers and shareholders as predicted by agency theory is described to
motivate the use of share-based pay. Then, the influence of manager-specific attributes and
compensation design on the risk premium and the risk incentives is discussed Theoretical and
empirical research findings are presented and discussed to gain insights into the determinants
and effects of stock-based compensation. Last but not least, a descriptive analysis of the payperformance
sensitivities of the stock and option portfolios of board members in the German
DAX and MDAX in the period of 2006 to 2010 is conducted.
Zusammenfassung
Die vorliegende Arbeit untersucht die Auswirkungen von aktienkursorientierter Vergütung
auf das Risikoverhalten von Managern. Basierend auf den Vorhersagen des Principal-
Agenten-Modells wird zunächst die Beziehung zwischen Aktionären und dem Vorstand
beschrieben, um die Verwendung aktienkursorientierter Vergütung zu begründen.
Darauffolgend wird der Einfluss von managerspezifischen Eigenschaften und der
Vergütungsstruktur auf die Risikoprämie und die Risikoanreize dargelegt. Zur Identifizierung
der Determinanten und Konsequenzen von aktienkursorientierte Vergütung werden
theoretische und empirische Forschungsergebnisse präsentiert und diskutiert. Abschließend
wird eine deskriptive Analyse der Unternehmensleistungssensitivitäten von Aktien- und
Aktienoptionsportfolios von Vorständen aus DAX und MDAX in der Periode von 2006 bis
2010 durchgeführt.
Table of contents
List of figures
List of Tables
List of Appendices
List of abbreviations
1 The growing use of stock-based compensation
2 The diverging risk preferences of principal and agent
3 Overcoming managerial risk aversion
4 The risk premium on share-based pay
4.1 The influence of the exercise price, degree of diversification and the risk aversion parameter on the risk premium of the manager
4.2 The importance to distinguish between firm-specific and systematic risk when the market portfolio can be traded
4.3 Implications for the use of share-based pay and research on the effects of share- based pay
5 Theoretical predictions on the risk incentives provided by share-based pay
5.1 The effects of managerial risk aversion and compensation design on risk incentives provided by share-based pay
5.2 The incentives provided by share-based pay regarding total risk
5.3 The effects provided by share-based pay to change systematic risk, firm-specific risk and the correlation between company returns and market returns
6 Empirical findings on the relationship between share-based pay and company risk
6.1 Estimating the sensitivities to stock price and stock volatility of a manager’s portfolio with the “one-year” approach
6.2 The joint determination of firm risk characteristics and share-based pay
6.3 The incentives provided by vega and delta to change the components of risk
7 Descriptive analyses of the pay-performance sensitivities of German DAX and MDAX executives
7.1 Sample description
7.2 Calculation of the pay-performance sensitivity
7.3 The alignment of DAX and MDAX board members
8 Summary of results
Appendix
List of references
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