Not all Risk Taking is Born Equal: The Behavioral Agency Model and CEO's Perception of Firm Efficacy

2014 ◽  
Vol 54 (3) ◽  
pp. 483-498 ◽  
Author(s):  
Geoffrey Martin ◽  
Nathan Washburn ◽  
Marianna Makri ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Behavioral Agency

Does Greater Risk-Bearing in Stock Option Compensation Reduce the Influence of Problem Framing On Managerial Risk-Taking Behavior?

2011 ◽  
Vol 23 (1) ◽  
pp. 185-201 ◽  
Author(s):  
Kimberly Sawers ◽  
Arnold Wright ◽  
Valentina Zamora
Keyword(s):  
Risk Taking ◽  
Stock Options ◽  
Stock Option ◽  
Money Stock ◽  
Agency Model ◽  
Problem Framing ◽  
Managerial Risk ◽  
Option Compensation ◽  
Behavioral Agency ◽  
Stock Option Compensation

ABSTRACT: We examine the extent to which the behavioral agency model reflects the relation between greater risk-bearing in stock option compensation and managerial risk-taking. The behavioral agency model predicts that managers with greater wealth at stake will avoid risky projects that threaten their wealth. This greater risk-bearing effect moderates the problem-framing effect, which predicts that loss-averse managers will be more (less) risk-taking when choosing among loss (gain) projects. Using a 2 × 2 between-subjects experiment with 108 M.B.A. students acting as managers, we find that managers are more risk-taking in the loss context than in the gain context when they have at-the-money stock options but not when they have wealth at stake through in-the-money stock options. Further, we find that managers with in-the-money stock options are less risk-taking than managers with at-the-money stock options in the loss context. These findings support the behavioral agency model prediction that greater risk-bearing in stock option compensation (moving from at-the-money stock options to in-the-money stock options) reduces the problem framing effect on risk-taking behavior, particularly when the firm faces a loss decision context. Our results point to the importance of considering the implications of risk-bearing in stock option compensation for managers choosing risky projects that affect firm value.

CEO Risk-Taking and Socioemotional Wealth: The Behavioral Agency Model, Family Control, and CEO Option Wealth

2017 ◽  
Vol 45 (4) ◽  
pp. 1713-1738 ◽  
Author(s):  
Luis R. Gomez-Mejia ◽  
Ionela Neacsu ◽  
Geoffrey Martin
Keyword(s):  
Risk Behavior ◽  
Risk Taking ◽  
Family Firms ◽  
Family Influence ◽  
Firm Risk ◽  
Dominant Firm ◽  
Agency Model ◽  
Family Control ◽  
Unique Nature ◽  
Behavioral Agency

We combine behavioral agency and family business literature to analyze the role of dominant firm principals in constraining the managerial agent’s (CEO’s) response to equity-based pay. Behavioral agency research has made progress in understanding CEO risk behavior in response to equity-based incentives and family firm risk behavior driven by concentrated socioemotional and financial firm-specific risk bearing. However, both literatures have evolved independently, which has limited our understanding of how the risk bearing of agent and principal influences the predictions of the behavioral agency model (BAM). We combine these literatures in order to enhance BAM’s predictive validity with regard to firm risk-taking as a function of both agent and principal risk preferences. Our findings suggest that family principals are more likely than nonfamily principals to constrain CEO risk behavior that is perceived as immoderate (excessively risk averse or excessively risk seeking). We also offer evidence that CEO ties to the family influence the CEO’s response to equity-based incentives. In doing so, we offer refinements to BAM’s formulation and advance our understanding of the unique nature of agency problems within family firms.

A Behavioral Agency Model of Managerial Risk Taking

1998 ◽  
Vol 23 (1) ◽  
pp. 133-153 ◽  
Author(s):  
Robert M. Wiseman ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Managerial Risk ◽  
Behavioral Agency

A Behavioral Agency Model of Managerial Risk Taking

1998 ◽  
Vol 23 (1) ◽  
pp. 133 ◽  
Author(s):  
Robert M. Wiseman ◽  
Luis R. Gomez-Mejia
Keyword(s):  
Risk Taking ◽  
Agency Model ◽  
Managerial Risk ◽  
Behavioral Agency

Executive Stock Options as Mixed Gambles: Revisiting the Behavioral Agency Model

2013 ◽  
Vol 56 (2) ◽  
pp. 451-472 ◽  
Author(s):  
Geoffrey P. Martin ◽  
Luis R. Gomez-Mejia ◽  
Robert M. Wiseman
Keyword(s):  
Stock Options ◽  
Executive Stock Options ◽  
Agency Model ◽  
Behavioral Agency

A Behavioral Agency Model of Managerial Creativty

2014 ◽  
Author(s):  
Nassim Belbaly ◽  
Autcharaporn Somsing
Keyword(s):  
Agency Model ◽  
Behavioral Agency

Takeover Premiums and Family Blockholders

2015 ◽  
Vol 29 (2) ◽  
pp. 214-230 ◽  
Author(s):  
Max P. Leitterstorf ◽  
Maximilian M. Wachter
Keyword(s):  
Family Firms ◽  
Agency Model ◽  
Listed Firms ◽  
Empirical Results ◽  
The Impact ◽  
Special Case ◽  
Behavioral Agency

Blockholders impact strategic firm decisions because they are better at monitoring managers than dispersed shareholder groups. Nevertheless, we do not sufficiently understand how preferences of different blockholder types impact strategic firm decisions. We discuss this in the context of takeover premiums offered for publicly listed firms. Prior studies have argued that managers are often tempted to offer excessively high premiums. Consistently, blockholders might better control managers and ensure lower premiums. To better understand the impact of blockholder preferences, we focus on the special case of family firms. Specifically, drawing on the behavioral agency model, we hypothesize that bidders with family blockholders offer lower premiums than bidders with other blockholders or bidders without blockholders. Our empirical results support our hypotheses based on a sample of 149 takeover offers.

CEO pay and family firm heterogeneity: A behavioral agency model perspective

2021 ◽  
pp. 234094442110517
Author(s):  
Carlos Fernández Méndez ◽  
Rubén Arrondo García ◽  
Shams Pathan
Keyword(s):  
Family Firms ◽  
Firm Heterogeneity ◽  
Jel Classification ◽  
Agency Model ◽  
Family Control ◽  
Listed Firms ◽  
Top Executives ◽  
Pay Disparity ◽  
Ceo Pay ◽  
Behavioral Agency

We study the effects of family control on CEO pay from the perspective of behavioral agency model (BAM), with particular focus on family firm’s generational stage and CEO family ties. Using a panel of Australian listed firms, we find that family firms present lower total and variable CEO pay, showing also less pay disparity between the CEO and other top executives. We also find that multi-generational family firms and those run by non-family CEOs offer higher total and variable CEO pay and present high pay disparity. The BAM and family’s aversion to socioemotional wealth loss can explain the effects of family control based on the pursuing of non-financial family goals. The decline of these goals derived from the aging of the firm and the hiring of external CEOs shape family control and should be considered in the design of executive compensation policies and by external parties when assessing their suitability. JEL CLASSIFICATION: G30; G32; G34; G38

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