Raviv, Alon and Savaser, Tanseli and Sisli Ciamarra, Elif, Managerial Performance Incentives and Firm Risk During Economic Expansions and Recessions (August 6, 2014). Available for download at SSRN: http://ssrn.com/abstract=2476964

“In this paper, we argue that the relationship between managerial pay-for-performance incentives and risk taking is procyclical. We study the relationship between incentives provided by stock-based compensation and firm risk for the U.S. non-financial corporations over the two business cycles between 1992 and 2009. We show that a given level of pay-for-performance incentives results in significantly lower firm risk when the economy is in a downturn. We attribute this finding to the increased employment risk during macroeconomic downturns.”