Dual Ownership and Risk-taking Incentives in Managerial Compensation

15:30-17:00, Friday, March 26, 2021

Tencent Meeting (Meeting ID: 656 942 620)

Dr. Tao (Jonas) CHEN is an associate professor at Nanyang Business School in Nanyang Technological Univeristy. He received his PhD in Finance in 2014 from the Chinese University of Hong Kong. His research interest focuses on how financial market participants influence corporate policies, particularly issues related to environmental, social and corporate governance (ESG) and how FinTech and financial innovation affect financial inclusion and risk. He has published his work in Journal of Financial Economics (×2), Management Science (×2), Journal of Financial and Quantitative Analysis, Strategic Management Journal, Journal of Banking and Finance (×2), Journal of Corporate Finance (×2), Journal of Empirical Finance, and Accounting and Finance. His papers have been presented at major finance conferences including AFA, WFA, EFA, SFS Cavalcade, AAA, FIRS, ABFER, Finance Down Under, ECCCS, top business schools, such as MIT Sloan, NYU Stern, UPenn Wharton, Cambridge Judge, LBS, LSE, UF Warrington, UNC Kenan-Flagler, leading institutions, such as NBER, Federal Reserve Board, BIS, Luohan Academy, and covered by Financial Times, VoxEU, Lianhe Zaobao, and the Network for Business Sustainability. Tao was invited to serve as an HKIMR research fellow by Hong Kong Monetary Authority (HKMA). He has received numerous awards, including CUHK Young Scholars Award, NBS Teaching Excellence Award, Outstanding Paper Award in Annual Conference on Asia-Pacific Financial Markets, Best Paper Award in Asian Finance Association Annual Meeting, and Pioneer Award in 2020 Peak Initiative of Digital Finance Open Research.

This paper studies how managerial compensation is shaped by the risk preference of shareholders. Firms with a large ownership held by “dual holders” - institutional investors that simultaneously hold equity and bonds of the company - choose a less risk-inducing compensation structure. Exploiting financial institution mergers that create dual holders for portfolio companies, we identify a causal link between dual ownership and CEO compensation policies. Mutual fund proxy voting data suggest that shareholder voting is an important channel for dual holders to implement less convex contracts.

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