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The impact of management equity incentive on firms' risk-taking under different monitoring conditions

Author

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  • Geng, Haipeng
  • Su, Zhongfeng
  • Wang, Junkai

Abstract

The influence of managerial equity incentive on firms' risk-taking remains controversial within two dominant paradigms: agency theory and behavioral agency model (BAM). To reconcile the tension between these paradigms within an integrated framework, we explore the divergent effects of managerial equity incentive on deviant and aspirational risk-taking, reflected by bribery expenditure and R&D intensity, respectively. Additionally, we examine the moderating effects of institutional shareholder monitoring and government monitoring. Using data on 12,660 observations of Chinese listed firms from 2009 to 2019, we find that managerial equity incentive negatively impacts bribery expenditure, a tendency that is intensified by both institutional shareholder monitoring and government monitoring. Conversely, it positively affects R&D intensity, with this effect weakened by institutional shareholder monitoring but strengthened by government monitoring. This study provides a novel insight into reconciling the controversy between agency theory and BAM by illustrating the different roles of managerial equity incentive in various types of risk-taking under varying monitoring conditions.

Suggested Citation

  • Geng, Haipeng & Su, Zhongfeng & Wang, Junkai, 2025. "The impact of management equity incentive on firms' risk-taking under different monitoring conditions," International Review of Financial Analysis, Elsevier, vol. 97(C).
    • Handle: RePEc:eee:finana:v:97:y:2025:i:c:s1057521924007221
    DOI: 10.1016/j.irfa.2024.103790
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