PublisherThe University of Arizona.
RightsCopyright © is held by the author. Digital access to this material is made possible by the University Libraries, University of Arizona. Further transmission, reproduction or presentation (such as public display or performance) of protected items is prohibited except with permission of the author.
AbstractUsing the compensation gap between a CEO and the highest-paid CEO in the same Metropolitan Statistical Area (MSA) as a proxy for local tournament incentives, I document a positive relation between local tournament incentives and firm risk. Specifically, CEOs who face higher local incentives implement riskier policies, including higher R&D expenditures and less diversification. Exploiting quasi-shocks to local incentives and cross-sectional variation in the probability of winning, I show that the incentive effects vary systematically with theoretical predictions. The results are robust to alternative local tournament incentives measures, sample periods, and firm risk proxies.
Degree ProgramGraduate College