Please use this identifier to cite or link to this item: http://hdl.handle.net/10397/43713
Title: CEO risk-taking incentives and the cost of equity capital
Authors: Chen, Y 
Truong, C
Veeraraghavan, M
Keywords: Deltas
Executive compensation
Implied cost of equity capital
Vegas
Issue Date: 2015
Publisher: Wiley-Blackwell
Source: Journal of business finance and accounting, 2015, v. 42, no. 7-8, p. 915-946 How to cite?
Journal: Journal of business finance and accounting 
Abstract: In this paper, we show that the sensitivities of an executive's wealth to changes in stock prices (deltas) decrease the implied cost of equity capital while the sensitivities of an executive's wealth to changes in stock volatility (vegas) increase the implied cost of equity capital. Our findings demonstrate that shareholders understand the risks of firms' future projects as embedded in executive compensation and price these risks into the cost of equity capital accordingly. The findings have strong implications for optimal executive compensation contract design, project evaluation and cost of capital estimation.
URI: http://hdl.handle.net/10397/43713
ISSN: 0306-686X
DOI: 10.1111/jbfa.12126
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