Can stock options turn CEOs into reckless risk-takers?

07/7/2011 | Knowledge@Wharton

Companies that give their CEOs hefty stock options could be setting themselves up for a fall, according to a new study. Bosses who receive stock options tend to take more unwarranted risks, researchers found, because once stocks fall below a certain point, option-holding bosses are left with nothing to lose. "Options do have an effect on risk-taking. That is something that should be factored into compensation structure by boards of directors," says Wharton finance professor Todd A. Gormley, the study's co-author.

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