Work

Convexity, Magnification, and Translation: the Effect of Managerial Option‐based Compensation on Corporate Cash Holdings

Year: 2014

Type: article

Abstract: Using the distinctions among the convexity, magnification, and translation effects, we identify the pertinent parameters and examine empirically the relation between cash holdings and option‐based managerial compensation. We show that changes in delta reduce the effects of magnification and convexity on managerial risk aversion. We also provide evidence that there is a negative relation between the option‐based incentives delta and vega and cash holdings. These results are robust when incentives are extended to include all executive board members and when the sample is broken down according to different risk characteristics.

Source: The Journal of Financial Research

DOI: 10.1111/jfir.12034

Authors: Yacine Belghitar, Ephraim Clark

Institutions: Cranfield University, Middlesex University London

Language: English

Topic: Corporate Finance and Governance

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,470

Funder: Economic and Social Research Council