THESIS
2021
1 online resource (x, 32 pages) : illustrations (chiefly color)
Abstract
We provide causal evidence of CEO compensation schemes featuring convexity to provide
risk-taking incentives. Specifically, we leverage the Federal Trademark Dilution Act
signed in 1996 which granted additional legal protection to selected trademarks against
dilution. We argue that this made risky product-market expansion more appealing to
shareholders of firms with protected trademarks because product differentiation is guaranteed.
We show that firms significantly increase the convexity of CEO compensation
in response to exogenous increases in investment opportunities. And this increase in convexity is more pronounced for firms whose brands are well recognized, products are more
substitutable, and CEOs have more career concerns.
Key Words— CEO Compensation, Convexity, Vega, Trademark...[
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We provide causal evidence of CEO compensation schemes featuring convexity to provide
risk-taking incentives. Specifically, we leverage the Federal Trademark Dilution Act
signed in 1996 which granted additional legal protection to selected trademarks against
dilution. We argue that this made risky product-market expansion more appealing to
shareholders of firms with protected trademarks because product differentiation is guaranteed.
We show that firms significantly increase the convexity of CEO compensation
in response to exogenous increases in investment opportunities. And this increase in convexity is more pronounced for firms whose brands are well recognized, products are more
substitutable, and CEOs have more career concerns.
Key Words— CEO Compensation, Convexity, Vega, Trademark
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