Executive compensation and corporate risk-taking: Evidence from private loan contracts

Yongqiang Chu, Ming Liu, Tao Ma, Xinming Li

Research output: Contribution to journalArticlepeer-review

15 Scopus citations


We examine how management stock options affect corporate risk taking. We exploit exogenous variation in stock option grants generated by FAS 123R and use loan spreads to infer risk taking. Using a difference-in-differences approach, we find that the spreads of loans taken by firms that did not expense options before FAS 123R (treated firms) significantly decrease after FAS 123R relative to firms that either did not issue stock options or voluntarily expensed stock options before 123R (control firms). We also find that the effect is stronger for firms with high agency conflicts associated with risk-shifting. Furthermore, loans taken by the treated firms are less likely to contain collateral requirements and are less likely to have covenants restricting capital investment post FAS 123R.

Original languageEnglish
Article number101683
JournalJournal of Corporate Finance
StatePublished - Oct 2020


  • Bank loan
  • Executive compensation
  • FAS 123R
  • Risk shifting


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