Share options spur CEOs to take more risks
Granting employee stock options motivates CEOs of banking firms to undertake riskier projects, research published by the New York Fed has found.
A sample of 549 bank-years for publicly traded banks from 1992 to 2002 indicated equity and asset volatility increased as CEO stock option holdings increased.
The research also found that the granting of options leads to banks reducing their borrowing and that banking firms that grant more options to their employees build up more capital in future years.
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