Abstracts of Forthcoming papers BRIA 23(1) 2011:

 

 

Does Greater Risk-Bearing in Stock Option Compensation Reduce the Influence of Problem Framing on Managerial Risk-Taking Behavior?

 

Kimberly Sawers, Seattle Pacific University

Arnold Wright, Northeastern University

Tina Zamora, Boston College

 

Abstract: We examine the extent to which the behavioral agency model reflects the relation between greater risk-bearing in stock option compensation and managerial risk-taking. The behavioral agency model predicts that managers with greater wealth at stake will avoid risky projects that threaten their wealth. This greater risk-bearing effect moderates the problem framing effect, which predicts that loss averse managers will be more (less) risk-taking when choosing among loss (gain) projects. Using a 2 x 2 between subjects experiment with 108 MBA students acting as managers, we find that managers are more risk-taking in the loss context than in the gain context when they have at-the-money stock options but not when they have wealth at stake through in-the-money stock options. Further, we find that managers with in-the-money stock options are less risk-taking than managers with at-the-money stock options in the loss context. These findings support the behavioral agency model prediction that greater risk bearing in stock option compensation (moving from at-the-money stock options to in-the-money stock options) reduces the problem framing effect on risk-taking behavior, particularly when the firm faces a loss decision context.  Our results point to the importance of considering the implications of risk-bearing in stock option compensation for managers choosing risky projects that affect firm value.

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Determinants of Moral Judgments Regarding Budgetary Slack: An Experimental Examination of Pay Scheme and Personal Values

 

Jessen L. Hobson, University of Illinois

Mark J. Mellon, Florida State University

Douglas E. Stevens, Florida State University

 

Abstract:  We study moral judgments regarding budgetary slack made by participants at the end of a participative budgeting experiment in which an expectation for a truthful budget was present. We find that participants who set budgets under a slack-inducing pay scheme, and therefore built relatively high levels of budgetary slack, judged significant budgetary slack to be unethical on average whereas participants who set budgets under a truth-inducing pay scheme did not. This suggests that the slack-inducing pay scheme generated a moral frame by setting economic self-interest against common social norms such as honesty or responsibility. We also find that participants who scored high in traditional values and empathy on a pre-experiment personality questionnaire (JPI-R) were more likely to judge significant budgetary slack to be unethical. These results suggest that financial incentives play a role in determining the moral frame of the budgeting setting and that personal values play a role in determining how individuals respond to that moral frame.

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