| Summary: | 碩士 === 臺灣大學 === 財務金融學研究所 === 98 === The main purpose of this empirical research is to discuss the relation between CEO’s stock option compensation and CEO’s risk-taking behaviors. We try to decompose CEO’s risk-taking behaviors into investment decisions and financing decisions. In our empirical research, we use KMV model to derive implied asset volatility as the proxy for CEO’s investment decisions, and we use debt ratio as the measurement of CEO’s financing decisions. Furthermore, in order to measure the risk-taking incentives, we use CEO’s stock option value divided by total compensation in a given year as the proxy for CEO’s risk-taking incentives.
Our empirical research shows that on average the level of CEO’s stock option compensation incentive did induce CEO to make risky investments decisions. On the other hand, if CEO own in-the-money options, CEO would prefer less risky project due to their conservative attitude.
Furthermore, if we divide CEO’s stock option into two different groups- out-of-the money and in-the-money option, we find out that the level of CEO risk-taking incentives does not have obvious relation with asset volatility. However, if the out-of-the money options which CEO holds are near the exercise price, CEO will have higher but not significant incentive to take risky investment for the reason that CEO want to elevate asset volatility. Nevertheless, the relation between in-the-money stock option compensation and investment behaviors is ambiguous.
On the other hand, our empirical research does not support the idea that CEO’s stock option can lead CEO to make risky financing decisions. As a result, we conclude that the risk-taking incentives which stock options provide to CEO may have higher influence on CEO’s investment decisions than on financing decisions.
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