Managerial risk-taking incentives and state economic growth

Using U.S. state-level data between 1993 and 2015, this paper examines whether aggregate executive risk-taking incentives are related to future state economic growth. I find evidence that an increase in state-level aggregate risk-taking incentives is predictably associated with a lower future state economic growth, after controlling for the effect of aggregate pay-for-performance sensitivity. This result is robust to a battery of tests conducted to address concerns related to correlated omitted variables, reverse causality, and measurement errors. Consistent with the theory which posits that lenders’ screening is countercyclical, the negative relation is more pronounced during economic expansions and when credit supply is likely to be abundant. Further, subsequent total bank loan charge-offs are greater in states with high aggregate risk-taking incentives and a high level of credit supply. M&As consummated in states with both high aggregate risk-taking incentives and a high level of credit supply perform significantly worse than others. Finally, an examination of possible channels reveals that state-level growth in risk-taking incentives is associated with an increase in riskier corporate activities at the aggregate level.

Name thesis:degree_name

Ph.D.

Level thesis:degree_level

Dissertation

Discipline thesis:degree_discipline

Accountancy

Grantor

University of Illinois at Urbana-Champaign

Year dc:date

2019

Author dc:creator

• Yoon, Ha Young

Contributors dc:contributor

• Urcan, Oktay
• Almeida, Heitor
• Li, Laura Y
• Sougiannis, Theodore

• Risk-taking incentives
• Aggregate
• State-level economic growth

Statement dc:rights

• Copyright 2019 Ha Young Yoon

Language dc:language

en

Handle dc:identifier

http://hdl.handle.net/2142/105165

OAI identifier oai:identifier

oai:www.ideals.illinois.edu:2142/105165