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

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.