Do risk-taking incentives induce CEOs to invest? Evidence from acquisitions

Croci, Ettore; Petmezas, Dimitris

Abstract

This paper examines the effect of risk-taking incentives on acquisition investments. We find that CEOs with risk-taking incentives are more likely to invest in acquisitions. Economically, an inter-quartile range increase in vega translates into an approximately 4.22% enhancement in acquisition investments, consistent with the theory that risk-taking incentives induce CEOs to undertake investments. Importantly, the positive relation between vega and acquisitions is confined only to non-overconfident CEO subgroup. Further, corporate governance does not generally affect the association between vega and acquisition investments. Finally, vega is positively related to bidder announcement returns.

• Journal Article Type: Article
• Acceptance Date: Mar 10, 2015
• Online Publication Date: Mar 17, 2015
• Publication Date: 2015-06
• Deposit Date: Jul 29, 2020
• Publicly Available Date: Jul 29, 2020
• Journal: Journal of Corporate Finance
• Print ISSN: 0929-1199
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 32
• Pages: 1-23
• DOI: https://doi.org/10.1016/j.jcorpfin.2015.03.001
• Public URL: https://durham-repository.worktribe.com/output/1265270
• Related Public URLs: https://epubs.surrey.ac.uk/820550/