Are the conventional ways to measure managerial incentives to take asset risk still correct?
Professors Marc Chesney and Alexander Wagner, SFI@UZH, research presented at AEA/AFA in Chicago.
In their paper “Managerial incentives to take asset risk”, Marc Chesney (SFI@UZH), Jacob Stroemberg and Alexander Wagner (SFI@UZH) challenge conventional wisdom regarding the measurement of incentives to take risk. Existing academic work posits that all risk-taking incentives emanate from stock options, and it virtually ignores the fact that, especially in a levered company like in a bank, substantial risk-taking incentives emanate even from plain shareholdings of managers. Chesney, Stroemberg and Wagner develop suitable measures of asset risk-taking incentives and show that they explain asset risk-taking before the financial crisis better than existing measures.