The Micro-Mechanism Design of Corporate Risk-Taking—An Analysis Based on the Target Difficulty of Performance-Vesting Provisions in Stock Incentive Plans
We investigate how micro-mechanism design would affect corporate risk-taking from the perspective of the target difficulty of performance-vesting provisions in stock incentive plans and find a U shape between the target difficulty and the level of corporate risk-taking.It implies that managers would strategically determine the risk-taking level under different target difficulties to achieve a higher payoff.Besides,the U shape manifests for firms with powerful vesting managers and less feasibility of managing earnings.Overall,the findings not only extend the literature on motivating corporate risk-taking,but also shed some light on the stock incentive contract designs.
risk-takingstock incentive planstarget difficulty of performance-vesting provisions
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