Topic:Controllability of Risk and the Design of Incentive-Compensation Contracts
Speaker:Sterling Huang, Singapore Management University
Time:Wednesday, June 13th, 10:00-11:30 a.m
Place:Room 217, Guanghua Building 2
We examine how the ability to control firm exposure to risk affects the design of executive compensation contracts. To do so, we use the introduction of exchanged-traded weather derivatives, which significantly increased executives’ ability to control their firms’ exposure to weather risk, as a natural experiment. We find that executives for whom weather derivatives have the greatest impact on the ability to control firm exposure to weather risk experience relative declines in total compensation and equity incentives. The former finding is consistent with a reduction in the risk premium that executives receive for their firms’ exposure to weather risk. The latter finding suggests that risk and incentives are complements when executives can control their firms’ exposure to risk. Collectively, our results show that the executives’ ability to control their firms’ exposure to risk alters the nature of agency conflicts and influences the design of incentive-compensation contracts.
Dr. Sterling Huang joined Singapore Management University in 2014. He received his Master of Science and Ph.D. in Management from INSEAD Business School. Prior to his doctoral studies, he was an auditor with PricewaterhouseCoopers (Sydney) and a lecturer at Macquarie University Australia. He has published in theJournal of Accounting Research, The Accounting Review, Review of Financial Studies, Strategic Management Journal, European Accounting ReviewandJournal of Accounting, Auditing, and Finance. His work has been cited multiple times in major media outlets and practitioner forums, such asWall Street Journal, Thomson Reuters, Bloomberg, INSEAD Knowledge, Harvard Business Review, Booz & Co Strategy & Business Magazine, Chief Executive Magazine, American Banker Online, Finance & Development (IMF), the Harvard Law School Forum on Corporate Governanceandthe Columbia Law School’s Blog on Corporations and the Capital Markets. He is a Chartered Financial Analyst Charterholder and a member of Institute of Chartered Accountant Australia.
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