Finance Seminar with Gustavo Grullon, Jesse H. Jones Graduate School of Management, Rice University
The Department of Finance is proud to announce the upcoming seminar with Gustavo Grullon, Jesse H. Jones Graduate School of Management, Rice University.
Gustavo Grullon will present:
Downside Risk and the Design of CEO Incentives: Evidence from a Natural Experiment
Gustavo Grullon, Rice University
David De Angelis, Rice University
Sébastien Michenaud, Rice University
This paper examines the causal effects of downside risk on the design of CEO incentive contracts. Using an experiment that exogenously increases downside risk, we find that firms respond to this shock by increasing the convexity of the compensation payoff of their CEOs and other top managers. We also find that these firms mitigate the impact of this shock by adopting new anti-takeover provisions. Overall, our results indicate that protecting managers from downside risk is an important goal in the design of incentive contracts.