When contracts require risk-averse executives to hold equity : Implications for option valuation and relative performance evaluation

@inproceedings{Huddart2001WhenCR,
  title={When contracts require risk-averse executives to hold equity : Implications for option valuation and relative performance evaluation},
  author={S. P. Kothari Steve Huddart},
  year={2001}
}
  • S. P. Kothari Steve Huddart
  • Published 2001
A growing body of literature suggests that because an executive is risk-averse and undiversified, he values equity compensation and incentives at less than market value. This discount on valuation is driven by the assumption that the executive is constrained from rebalancing his portfolio following an equity grant, and as such, the payment of equity compensation permanently increases the risk and incentives borne by the executive. We relax this exogenous assumption, and assume that firms… CONTINUE READING