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Title:Managerial risk-taking incentives and state economic growth
Author(s):Yoon, Ha Young
Director of Research:Urcan, Oktay
Doctoral Committee Chair(s):Urcan, Oktay
Doctoral Committee Member(s):Almeida, Heitor; Li, Laura Y; Sougiannis, Theodore
Department / Program:Accountancy
Degree Granting Institution:University of Illinois at Urbana-Champaign
Subject(s):Risk-taking incentives
State-level economic growth
Abstract: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.
Issue Date:2019-04-08
Rights Information:Copyright 2019 Ha Young Yoon
Date Available in IDEALS:2019-08-23
Date Deposited:2019-05

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