Business Administration, Management, and Operations Commons^™

Executive Stock Options As Mixed Gambles: Re-Visiting The Behavioral Agency Model, Geoffrey P. Martin, Robert M. Wiseman, Luis Gomez-Mejia

Geoffrey P Martin

Conceiving of stock options as providing the CEO with cues for the possibility of both greater prospective wealth and losses to current wealth, we re-visit predictions of the behavioral effects of equity based pay using the Behavioral Agency Model (BAM). We refine BAM’s original formulation and provide an explanation for previous conflicting empirical results by theorizing that the anticipation of prospective wealth attenuates the negative effect of accumulated current equity wealth upon CEO strategic risk taking. In doing so, we offer an advancement of the dialectic between: (1) classical agency scholars, arguing that equity based pay leads to more risk …