This paper provides an empirical investigation into the relationship between ex ante U.S. labor contract durations and uncertainty over the period 1970 to 1995. We construct measures of inflation uncertainty as well as aggregate nominal and real uncertainty. The results not only corroborate...

In a principal agent setting I show that the trade-off between risk and compensation is not monotonic. It is always beneficial for a company to offer a pay-per-performance contract that entails an additional performance measure that imposes more risk to the agent. The agent benefits from the...

This paper demonstrates that executive compensation convexity, measured as the sensitivity of managerial equity compensation portfolios to stock volatility, predicts firm-specific crashes. A bottom-to-top decile change in compensation convexity results in a 21% increase in a firm's crash risk...

I develop a dynamic agency model of financial contracting, where borrowing constraints appear as part of the optimal contract. The novelty of the paper relative to previous work is that volatility is stochastic and exogenous to the agent behavior. A line of credit appears in the optimal long...

Influenced by their compensation plans, CEOs make their own luck through decisions that affect future firm risk. After adopting a relative performance evaluation (RPE) plan, total and idiosyncratic risk are higher, and the correlation between firm and industry performance is lower. The opposite...

This study analyzed the principal-agent problem, in which the agent performs risk management tasks, and considered the cost minimization problem of the principal, the objective of which is to design the cheapest contract inducing a target effort. Our results confirm that a one-step bonus...

We examine how executives' ability to control their firm's exposure to risk affects the design of their incentive-compensation contracts. Using the introduction of exchanged-traded weather derivatives as a natural experiment, we find that executives who became more able to control their firm's...

Public firms in the United States that provide better insurance against productivity shocks to their workers experience higher cash flow volatility. Differences in intra-firm risk sharing between workers and capital owners accounts for more than 50% of the variation in firm-level cash flow...

We provide evidence that CEO equity incentives, especially stock options, influence stock liquidity risk via information disclosure quality. We document a negative association between CEO options and the quality of future managerial disclosure policy. Contributing to the literature on CEO...

The COVID-19 pandemic represented the emergence of an enormous, systemic, and largely un-anticipated economic risk. It upended entire industries on a global scale, shuttered millions of businesses by government order, and left millions more struggling to adapt to unforeseen and rapidly changing...