Wealth Shocks and Executive Compensation: Evidence from CEO Divorce

Persistent Link:
http://hdl.handle.net/10150/145400
Title:
Wealth Shocks and Executive Compensation: Evidence from CEO Divorce
Author:
Neyland, Jordan Bradley
Issue Date:
2011
Publisher:
The University of Arizona.
Rights:
Copyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
Abstract:
To empirically test the impact of CEOs' outside wealth on their compensation, I use spousal divorce as a proxy for an exogenous, negative shock to a CEO's outside wealth. I hypothesize that this shock decreases a CEO's risk tolerance. I also expect that the board of directors responds to this decrease by raising the CEO's cash compensation and by increasing the sensitivity of the CEO's compensation to changes in firm value. I find that cash bonuses, restricted stock grants, and option grants increase following a CEO's divorce, consistent with boards reacting to changes in CEOs' outside wealth and risk incentives. I also find that firms' total risk and idiosyncratic risk significantly drop during the year of a CEO's divorce, consistent with a drop in the CEO's risk tolerance. Overconfident CEOs, who are more risk tolerant, do not receive the same increases in compensation following divorce. I find little support for the relation between divorce and compensation being endogenously determined by performance or by poor corporate governance. Overall, the results support predictions that the board of directors takes the CEO's wealth into account when setting compensation and that outside wealth impacts the CEO's risk preferences.
Type:
Electronic Dissertation; text
Keywords:
CEO; Compensation; Divorce; Governance; Risk
Degree Name:
Ph.D.
Degree Level:
doctoral
Degree Program:
Graduate College; Management
Degree Grantor:
University of Arizona
Advisor:
Klasa, Sandy; Litov, Lubomir

Full metadata record

DC FieldValue Language
dc.language.isoenen_US
dc.titleWealth Shocks and Executive Compensation: Evidence from CEO Divorceen_US
dc.creatorNeyland, Jordan Bradleyen_US
dc.contributor.authorNeyland, Jordan Bradleyen_US
dc.date.issued2011-
dc.publisherThe University of Arizona.en_US
dc.rightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.en_US
dc.description.abstractTo empirically test the impact of CEOs' outside wealth on their compensation, I use spousal divorce as a proxy for an exogenous, negative shock to a CEO's outside wealth. I hypothesize that this shock decreases a CEO's risk tolerance. I also expect that the board of directors responds to this decrease by raising the CEO's cash compensation and by increasing the sensitivity of the CEO's compensation to changes in firm value. I find that cash bonuses, restricted stock grants, and option grants increase following a CEO's divorce, consistent with boards reacting to changes in CEOs' outside wealth and risk incentives. I also find that firms' total risk and idiosyncratic risk significantly drop during the year of a CEO's divorce, consistent with a drop in the CEO's risk tolerance. Overconfident CEOs, who are more risk tolerant, do not receive the same increases in compensation following divorce. I find little support for the relation between divorce and compensation being endogenously determined by performance or by poor corporate governance. Overall, the results support predictions that the board of directors takes the CEO's wealth into account when setting compensation and that outside wealth impacts the CEO's risk preferences.en_US
dc.typeElectronic Dissertationen_US
dc.typetexten_US
dc.subjectCEOen_US
dc.subjectCompensationen_US
dc.subjectDivorceen_US
dc.subjectGovernanceen_US
dc.subjectRisken_US
thesis.degree.namePh.D.en_US
thesis.degree.leveldoctoralen_US
thesis.degree.disciplineGraduate Collegeen_US
thesis.degree.disciplineManagementen_US
thesis.degree.grantorUniversity of Arizonaen_US
dc.contributor.advisorKlasa, Sandyen_US
dc.contributor.advisorLitov, Lubomiren_US
dc.contributor.committeememberBates, Thomasen_US
dc.contributor.committeememberSepe, Simoneen_US
dc.contributor.committeememberLamoureux, Christopheren_US
dc.contributor.committeememberGelbach, Jonahen_US
dc.identifier.proquest11449-
dc.identifier.oclc752261318-
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