The non-uniform relationship between CEO stock options and strategic risk-taking: the moderating role of firm performance

Abstract

Purpose

The purpose of this study is to examine the relationship between stock options compensation and firm strategic risk-taking, employing a quantile regression (QR) model. This study aims to analyze whether the impact of stock options on firm strategic risk-taking changes across various quantiles and investigates the moderating role of firm performance.

Design/methodology/approach

This study is based on a sample of 90 French firms for the period extending from 2008 to 2019. To deal with the non-uniform association, the authors use a panel quantile method.

Findings

The results reveal that the impact of chief executive officer (CEO) stock options on firm strategic risk-taking varies across risk-taking quantiles. More specifically, the study’s results show a positive association at low quantile levels of strategic risk-taking, measured by research and development (R&D) and a negative linkage at high levels. The authors also find that firm performance moderates the impact of CEO stock options on strategic risk-taking.

Research limitations/implications

The non-uniform relationship between CEO stock options and firm strategic risk-taking shows that the weight of CEO stock options in the total compensation can be a major determinant of the firm's strategic risk-taking attitude.

Originality/value

This study extends existing research on executive compensation and strategic risk-taking. Thus, this study has the potential to help stakeholders, board of directors and regulators, who are attempting to understand how the compensation contract – in particular, stock option pay – is related to the risk behavior of the agents and guide them to structure the executive compensation in an optimal way.

Citation

Zaiane, S., Dabbou, H. and Gallali, M.I. (2023), "The non-uniform relationship between CEO stock options and strategic risk-taking: the moderating role of firm performance", EuroMed Journal of Business, Vol. 18 No. 4, pp. 511-531. https://doi.org/10.1108/EMJB-02-2022-0023