The Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and R&D Investment

Download or read book The Effect of Managerial Incentives to Bear Risk on Corporate Capital Structure and R&D Investment written by Jouahn Nam and published by . This book was released on 2003 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: In this study we use estimates of the sensitivities of managers' portfolios to stock return volatility and stock price to directly test the relationship between managerial incentives to bear risk and two important corporate decisions. We find that as the sensitivity of managers' stock option portfolios to stock return volatility increases firms tend to choose higher debt ratios and make higher levels of Ramp;D investment. These results are even stronger in a sub sample of firms with relatively low outside monitoring. For these firms managerial incentives to bear risk play a particularly pivotal role in determining leverage and Ramp;D investment.