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'Target Difficulty and Corporate Risk Taking'

Detail Summary
Date 11 June 2019
Time 11:00 - 12:30
Location Roeterseilandcampus - gebouw M
Room Amsterdam Business School, REC M4.02

This study empirically examines the relation between the difficulty level of CEOs’ accounting performance targets and corporate risk-taking. Using recently available data on performance targets in CEOs’ compensation plans in 4,810 firm-year observations, we find that easier accounting performance targets are associated with greater corporate risk-taking. Our results are robust to alternative measures of target difficulty and alternative measures of risk-taking. Further analyses reveal that easier accounting performance targets direct managers’ attention away from short-term profitability and towards long-term risky investment. We also find evidence suggesting that easing accounting performance targets to induce risk-taking seems to be an intentional decision by the board of directors to increase firm value. We contribute to the target setting literature and executive compensation literature by providing large-scale archival evidence on the relation between target difficulty and corporate risk-taking.

Roeterseilandcampus - gebouw M

Room Amsterdam Business School, REC M4.02

Plantage Muidergracht 12
1018 TV Amsterdam