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An Analysis of the Association Between Firm Risk, Executive Share Options and Accounting Performance: Some Australian Evidence

Hutchinson, Marion 2003, An Analysis of the Association Between Firm Risk, Executive Share Options and Accounting Performance: Some Australian Evidence, Review of accounting and finance, vol. 2, no. 3, pp. 48-71, doi: 10.1108/eb027012.

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Title An Analysis of the Association Between Firm Risk, Executive Share Options and Accounting Performance: Some Australian Evidence
Author(s) Hutchinson, Marion
Journal name Review of accounting and finance
Volume number 2
Issue number 3
Start page 48
End page 71
Publisher Emerald Group
Place of publication West Yorkshire, England
Publication date 2003
ISSN 1475-7702
1758-7700
Keyword(s) Firm performance
firm risk,
share-options
Summary This paper examines whether the financial performance of the firm is associated with the risk-taking propensity of executives, which is inferred from the structure of their share option portfolio. The objective of this paper is to determine if executives have greater risk bearing preferences when they have more share options than shares in their firm. In turn, executives' risk-taking preferences suggest that these decision-makers adopt value-increasing strategies. The results of this study support this notion. The results of the study of 182 Australian firms demonstrate that the negative relationship between firm risk and firm performance is weaker when executives hold a higher proportion of share options than shares in their investment in the firm. These results hold implications for executives' compensation contracts. That is, executives who share in their firms' risk via share options are more likely to undertake risky activities with high-expected performance outcome.
Language eng
DOI 10.1108/eb027012
Field of Research 150105 Management Accounting
HERDC Research category C1 Refereed article in a scholarly journal
Persistent URL http://hdl.handle.net/10536/DRO/DU:30001964

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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