Agency theory versus managerial ownership theories: understanding the non-linear relationship between managerial incentives and firm risk.

This paper provides new UK evidence on the relationship between managerialincentives and firm risk using a hand-collected database of 3307 executive yearobservations (698 CEO years and 2609 other executive years). We find that therelation between pay performance sensitivity and firm risk exhibits a non-linearrelationship with firm size: for small to medium-sized quoted companies there is anegative relation between pay performance sensitivity and risk consistent with thestandard agency theory model; but for large quoted companies the relationshipbetween pay performance sensitivity and risk is positive....