Abstract
Using Kim and Skinner's (2012) framework, we document a positive association between firm-level litigation risk and CEOs’ equity incentives. This relationship remains robust when using an entropy-balanced sample, alternative regression specifications, a Granger causality test, and a difference-in-differences analysis leveraging Obama's election as an exogenous shock. Our results are also consistent across various restricted samples and alternative proxies for litigation risk and CEO pay. Additional tests indicate that this association is stronger (weaker) in firms with weaker (stronger) corporate governance. Furthermore, we find that the market responds more (less) favorably to risk-to-pay incentives in firms with strong (weak) governance. These findings suggest that regulators should strengthen corporate governance frameworks.
| Original language | English |
|---|---|
| Article number | 107151 |
| Pages (from-to) | 1-10 |
| Number of pages | 10 |
| Journal | Finance Research Letters |
| Volume | 78 |
| DOIs | |
| Publication status | Published - May 2025 |
Bibliographical note
© 2025 The Authors. Published by Elsevier Inc. Version archived for private and non-commercial use with the permission of the author/s and according to publisher conditions. For further rights please contact the publisher.Keywords
- Equity incentives
- Executive compensation
- Litigation risk