There is evidence that, as CEOs become wealthier, they take less risk with their firms to the detriment of shareholders, according to a new paper. It explains that pay-for-performance models are designed to align the goals of managers with the goals of owners, but these models do not consider the total amount of wealth the managers hold outside the firm and its effect on their actions. The paper considers the total wealth of the CEO and proportion of it held in the firm and then tries to find how they affect his or her decision-making. The paper is “How CEO Wealth and the Composition of Their Wealth Affects the Riskiness of the Firm,” by Bhagaban Panigrahi (Norfolk State University), Sonik Mandal (Old Dominion University), Charles Swartz (Old Dominion University), and Sanjib Guha (Christopher Newport University), and it appears in the Journal of International Finance and Economics.
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