We analyze the treatment and impact of idiosyncratic or firm-specific risk in regulation. Regulatory authorities regularly ignore firm-specific characteristics, such as size or asset ages, implying different risk exposure in incentive regulation. In contrast, it is common to apply only a single benchmark, the weighted average cost of capital (WACC), uniformly to all firms. This will lead to imp...

This study investigates the moderating effect of firm size in the relationship between corporate governance (board size, board independence and ownership concentration) and banks’ risk-taking (insolvency risk and credit risk). Secondary data (annual reports) was collected from a sample of 21 Malaysian commercial banks covering the 2005–2014 accounting period. An empirical model using pooled ord...

One of the oldest views on wage determination holds that wage differences reflect compensation for hedonic aspects of jobs such as the risk of injuries and occupational diseases. This paper studies the importance of such compensating wage differentials using longitudinal information on workers and firms. This data allows us to disentangle the wage and risk components that are attached to the wo...

Managerial Hedging and Equity Ownership Risk-averse managers can hedge the aggregate component of their exposure to firm’s cash flow risk by trading in financial markets, but cannot hedge their firm-specific exposure. This gives them incentives to pass up firm-specific projects in favor of standard projects that contain greater aggregate risk. Such risk substitution gives rise to excessive aggr...

Intangible assets are a key contributor to firm value, enabling the firm to differentiate itself from competitors on the basis of its access to specialized, efficient, firm-specific information, activities and procedures, identified as organization capital (OC). Since OC contains a heterogeneous group of disparate items, we isolate firm value creation by decomposing OC into two major parts: (1)...

This research intends to explore the factor determining the positive relation between executive stock options and managerial risk taking. I firstly investigate the relation between the risk increase of investment project (referred to the risk relative) and a measure of incentive effects of stock options (referred to as the incentive ratio). The evidence shows a positive relation between the ris...