Recent studies argue that CEO option compensation affects executives’ behavior toward risk. Specifically, the literature provides seemingly conflicting evidence regarding the impact of equity compensation (particularly option holding) on financing activities. We propose and test a nonlinear (e.g., inverted U-shaped) relation between corporate borrowing and option compensation. Consistent with our hypothesis, we empirically show that, in the low range of the option vega, a firm’s debt ratio increases as the option vega increases. However, in the high range of the option vega, we find the opposite relation. Our explanation is based on the contrasting effects of option compensation on managerial incentives toward risk. The positive wealth effect on leverage arises from the convexity of the option compensation, while a negative risk-premium effect exists due to managerial risk aversion. This reconciles the conflicting relation between leverage and option compensation that is often observed in the literature.

中文翻译：

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融资决策与期权补偿的非线性关系

最近的研究认为，CEO 期权薪酬会影响高管的风险行为。具体而言，关于股权补偿（特别是期权持有）对融资活动的影响，文献提供了看似相互矛盾的证据。我们提出并测试了公司借款和期权补偿之间的非线性（例如，倒 U 形）关系。与我们的假设一致，我们凭经验表明，在期权 vega 的低范围内，公司的债务比率随着期权 vega 的增加而增加。然而，在选项 vega 的高范围内，我们发现了相反的关系。我们的解释是基于期权补偿对风险管理激励的对比影响。对杠杆的正向财富效应源于期权补偿的凸性，而由于管理风险规避，存在负的风险溢价效应。这调和了文献中经常观察到的杠杆和期权补偿之间的冲突关系。