The Behavioral Agency Model and Innovation Investment: Examining the Combined Effects of CEO and Board Ownership

Abstract

The Behavioral Agency Model (BAM) offers a behavioral account of executive incentives, according to which the perceived threats to CEO wealth, that is, CEO risk bearing, influence a CEO’s propensity to undertake innovation investments. While examining stock options extensively, the extant BAM research devotes relatively scant attention to other forms of incentives, such as stock ownership, that are conducive to one source of risk bearing, that is, employment risk. Furthermore, with an emphasis placed on the CEO, much BAM research neglects the interactive risk preferences of the CEO and the board. This study refines the BAM and empirically explores the countervailing forces exerted by the CEO and board ownership. It elucidates that while CEO ownership exhibits an inverted U-shaped relationship with innovation investment, board ownership weakens that relationship. An exploratory test on a sample of 108 Italian manufacturing firms provides support for the hypothesized effects. The refined BAM sheds further light on executive incentives through a behavioral lens, by elucidating the role of stock ownership and the interactive risk preferences of the CEO and the board.

Keywords

corporate governance incentives compensation executive

Introduction

Innovation investment is a core driver of firm success (Kor, 2006; Lumpkin & Dess, 1996), but due to the significant risks it entails (Crawford & Di Benedetto, 1987; Lee & O’Neill, 2003), managers are reluctant to undertake it. Indeed, executives are known to be sensitive to downside risks and to eschew risky outlays that threaten their wealth or job position (Larraza-Kintana, Wiseman, Gómez-Mejía & Welbourne, 2007), giving rise to the problem of underinvestment (Kanagaretnam & Sarkar, 2011).

Incentives are considered a remedy for this problem. The Behavioral Agency Model (BAM) offers a behavioral account of how incentives influence a CEO’s proclivity to invest in risk-laden innovation initiatives (Wiseman & Gómez-Mejía, 1998). Central in BAM is the notion of risk bearing, or the CEO’s perceived threats to wealth. Drawing from prospect theory, the BAM predicts that reduced risk-bearing associates with higher levels of risky investments. Conversely, as risk bearing rises, risky investments decrease (Wiseman & Gómez-Mejía, 1998). Risk bearing stems from two sources: the “wealth risk” consisting of negative changes in CEO wealth and the “employment risk” involving the probability of dismissal.

BAM research mainly focuses on the “wealth risk” component of risk bearing, with the core rationale being that wealth in hand can be jeopardized by losses from risky investments. CEOs thus reduce investments to protect their wealth (Martin, Gómez-Mejía & Wiseman, 2013). This logic has been widely applied to stock options and restricted stocks (Devers, Wiseman & Holmes, 2007; Larraza-Kintana et al., 2007; Martin et al., 2013) and—to a lesser extent—to alternative forms of incentives, such as CEO ownership. For example, Sanders (2001) demonstrates that the larger values of CEO ownership decrease acquisition investing; Alessandri and Seth (2014) document that greater percentages of managerial ownership reduce international expansion.

With much emphasis being placed on the wealth effect, BAM research disregards that CEO ownership also affects the second source of risk bearing, or employment risk. Indeed, a long-standing tradition in classical agency theory holds that stock ownership affects CEO job security, giving rise to the phenomenon of managerial entrenchment (Berger, Ofek & Yermack, 1997; Fredrickson, Hambrick & Baumrin, 1988; Stulz, 1988). Specifically, CEO ownership confers control rights that (1) allow a CEO to forestall challenges to her authority, reducing the likelihood of dismissal (Berns, Gupta, Schnatterly & Steele, 2021), and (2) offer protection conditional on board ownership, given that one of the board’s primary functions is to evaluate and dismiss a CEO, and the directors’ ability to do so is greater when they also hold control rights (Bhagat & Bolton, 2008).

These notions open up a new domain of inquiry into the second source of risk bearing, that is, employment risk, along two interrelated dimensions. First, CEO ownership reduces the likelihood of dismissal and hence mitigates employment risk. Therefore, not only does CEO ownership increase CEO risk bearing, as published research emphasizing the “wealth effect” posits (Alessandri & Seth, 2014; Sanders, 2001), it also decreases CEO risk bearing in its “employment risk” component, given it strengthens job security. How the interplay of these two sources of CEO risk bearing affects risky investments remains unclear. Second, to the extent that CEO dismissal involves a board decision, and that such decision can be better enforced by directors holding control rights (Fredrickson et al., 1988), CEO risk bearing will be also shaped by board ownership. These considerations raise the question: How does CEO ownership affect investment in risk-laden innovation initiatives, contingent on the board ownership?

Addressing this research question is important from the theoretical and practical viewpoints. Theoretically, it entails adding new insights from prospect theory into the BAM to recast employment risk. By focusing on “wealth risk” and neglecting “employment risk,” the extant research overlooks that both sources of risk bearing affect CEO perception of risk, and, hence, that it is rather the interplay of these two forces that shapes CEO risk preferences. Specifically, behavioral research on instant endowment (Thaler, 1980) suggests that CEOs primarily include into perceived wealth more secure sources of wealth, such as job security and base salary (Wiseman & Gómez-Mejía, 1998): CEO risk bearing thus stems from threats to job security in the first place (Wiseman & Gómez-Mejía, 1998, p. 140); only when employment is insulated from negative consequences of risky investments will a CEO shift attention to outcome uncertainty or the “wealth effect” of risk bearing (see Wiseman & Gómez-Mejía, 1998, pp. 140–141). Overall, a lack of an explicit consideration of employment risk—as in much BAM research—prevents a comprehensive understanding of incentives at the top: the one-sided focus on “wealth risk” adopted in published studies offers an incomplete view of CEO incentives. Addressing the question above could advance the BAM view of CEO ownership, suggesting that it not only reduces risky investments as commonly believed (Alessandri & Seth, 2014; Sanders, 2001) it may also promote them under specific circumstances.

Additionally, addressing the question above is important, given previous research commonly frames risk preferences of a CEO as the sole decision maker at the top, disregarding that the boards of directors also have a say in investment decisions (Zona, Zattoni & Minichilli, 2013). Hence, while BAM scholars rely on prospect theory’s view of individual risk preferences, this enquiry allows integrating new insights from prospect theory on interactive risk preferences (Levy 1996), offering a more nuanced view of firm risk and decision-making at the top involving both the CEO and the board. This theoretical extension can provide a refined conceptual frame to advance BAM research exploring the main effects of CEO and board incentives separately, which to date has yielded inconclusive results (Martin, Wiseman & Gómez-Mejía, 2019; Lim & McCann, 2013).

From a practical point of view, CEO ownership is a common form of incentive worldwide (Abowd & Bognanno, 1995; Gugler, Mueller & Yurtoglu, 2008). Therefore, addressing the research question may support consulting firms, boards, owners, and regulatory bodies around the world. Indeed, these entities have progressively focused their attention on the best incentive practices in terms of ownership for the CEO and the board, “with fewer companies granting options and more awarding stocks” (SpencerStuart, 2019, p. 29).

In conducting this enquiry, we elucidate the interplay of the two sources of risk bearing. In accordance with Haans, Pieters and He (2016), we explicate the effects of the two latent mechanisms in place. From low to moderate levels of CEO ownership, job security mitigates employment risk and boosts risk taking. From moderate to high levels of CEO ownership, the wealth effect prevails so as to foster risk bearing and reduce risk taking. As a result, CEO ownership and firm innovation investment have an inverted U-shaped relationship. Additionally, we examine how this relationship is shaped by board ownership. Drawing on prospect theory’s view of interactive risk preferences, we predict that this inverted U-shaped relationship will be weakened by board ownership. We examine these hypotheses on a sample of Italian firms, which rarely adopt stock options and more commonly use stock ownership. The empirical test provides support for the hypothesized effects.

This study makes several contributions to BAM research. First, it refines the BAM view of CEO ownership, outlining the conditions under which it promotes or discourages risky investments. Thus, it reframes the classical agency view of job security as a managerial entrenchment, into a mechanism that—from a behavioral perspective—aligns the interests of the principal and the agent, so as to enhance innovation investments. Second, it extends the BAM notion of employment risk, which—by focusing on loss contexts (i.e., CEOs anticipating dismissal)—suggests that job insecurity fosters risk taking (Martin et al., 2013; Larraza-Kintana et al., 2007). In contrast to such a view, this study shows that the opposite holds in gain contexts: job insecurity stifles CEO risk taking; rather, protection against dismissal (lower employment risk) enhances risk taking. Third, this study advances the BAM by reframing individual risk preferences as interactive risk preferences involving the CEO and the board. In this way, it offers a novel avenue for further research on the role of the board in altering CEO risk preferences. Thus, this study refines the BAM in meaningful ways, elucidating the sources of risk preferences at the top of the organization from a behavioral perspective.

Theoretical Background

Investment in innovation is a central ingredient for business success. It enables the development of new products, entering new markets, maintaining technological parity, and acquiring new capabilities (Hitt, Hoskisson & Ireland, 1994; Hoskisson, Hitt, Johnson &Grossman, 2002; Stopford & Baden-Fuller, 1994; Zahra, Neubaum & Huse, 2000). Indeed, an emphasis on innovation enhances performance (Lumpkin & Dess, 1996), profitability (Covin & Slevin, 1991), and growth (Zahra, 1993). At the same time, innovation investment is risky. Fewer than 20% of all new product introductions succeed (Carnes, Chirico, Hitt, Huh & Pisano, 2017; Crawford & Di Benedetto, 1987). Even the projects that survive are typically unprofitable in the first years following their introduction (Block & MacMillan, 1993; Lee & O’Neill, 2003). Because of their high-risk profile, innovation investments have attracted considerable attention among management scholars (Bromiley, Miller & Rau, 2001).

Agency theory has long recognized a potential misalignment between CEO risk preferences and those of shareholders (Barney & Hesterly, 1996; Coffee, 1988). In the agency model, principals are considered risk neutral, given their ability to diversify their investments across firms; conversely, agents are considered risk averse, as their income and employment are tied to a single firm, with no possibility to diversify their human capital investment. A risk differential (Coffee, 1988) between principal and agent thus arises, whereby CEOs’ actions are conservative relative to shareholders’ preferences. Equity incentives have been regarded as a device to align the interests of CEOs and shareholders. By conferring opportunities for wealth gain, incentives such as stock options have been argued to boost investment by risk-averse managers (Tosi & Gómez-Mejía, 1989).

Wiseman and Gómez-Mejía (1998) challenge this agency view of risk. They contend that standard agency theory builds on a complex set of assumptions (e.g., individuals are consistently risk averse and wealth maximizers) that provide a simplistic view of an agent’s risk attitudes, which does not allow for CEOs to exhibit risk-seeking preferences or to modify their preferences in differing contexts (for an extensive discussion, see Wiseman & Gómez-Mejía, 1998).

By integrating prospect theory (Kahneman & Tversky, 1979) in principal–agent relationships, Wiseman and Gómez-Mejía (1998) developed the BAM that offers a novel view of risk based on more realistic assumptions of individual choice. First, the BAM assumes that individuals are loss averse (not risk averse, as posited by agency theory); that is, they weigh potential losses more than equivalent amounts of possible gains. Second, building on the concept of instant endowment, individuals endow anticipated gains to wealth (Hubbard & Palia, 1995). As a result, the possibility that anticipated gains could be lost induces perceptions of risk (Sitkin & Weingart, 1995).

Based on these premises, the BAM offers a distinct view of risk relative to agency theory, by incorporating the concepts of risk bearing (i.e., perceived threats to wealth). Hence, CEOs may be risk averse or risk seeking depending on how they frame problems. This means that in gain contexts, CEOs hold wealth in hand and are especially concerned with losing it (Sitkin & Weingart, 1995): they shy away from risky initiatives that may jeopardize their wealth. Conversely, in loss situations (i.e., when wealth is no longer part of their endowment), they have nothing to lose and will likely be prepared to take risks in order to avoid incoming losses. Ownership, in particular, represents a vivid component of wealth, which is particularly subject to the loss aversion dynamics: “[…] ownership of a valuable object understandably brings an aversion to losing that object. Property rights, thus, have a specific behavioral effect on the rights holder” (Chowdhury, Jeon & Ramalingam, 2018).

Wiseman and Gómez-Mejía (1998) specify that two sources of risk bearing are represented by decreases in CEO wealth (“wealth risk”) and employment risk. Yet, while extensively examining the former source of risk bearing, “Wiseman and Gómez-Mejía (1998) do not delve into the specific mechanism linking employment risk to agent risk taking” (Larraza-Kintana et al., 2007, p. 1004). Subsequent research has given little attention to employment risk, leaving this important source of risk bearing less understood. Specifically, the extant research limits the framing of employment risk to CEO perceptions (Larraza-Kintana et al., 2007); alternatively, it indirectly infers employment risk from external contingencies, such as performance downfalls (Martin et al., 2013). Therefore, a clear elucidation of employment risk, as a property of stock ownership, is missing. Additionally, these published studies only focus on employment risk in loss contexts, where the CEO already perceives that dismissal in the near term is likely (Larraza-Kintana et al., 2007; Martin et al., 2013). In such conditions, CEOs anticipating an incoming loss (job loss) will take risks, as a last resort solution to try saving their job and avoid dismissal. Yet, the role of employment risk in gain contexts—that is, in contexts where the CEO is not immediately threatened by dismissal, but rather his or her risky actions might actually cause dismissal by the board (Larraza-Kintana et al., 2007)—remains unclear.

In this regard, classical agency theory suggests that CEO ownership may play a significant role in ensuring job security. Ownership incentives confer control rights to the CEO, which protect against dismissal. This idea has been widely discussed under the rubric of managerial entrenchment, in which CEOs use their control rights against the interests of the principal owners. Thus, the extant published research points out that CEO ownership reduces the probability of dismissal. For example, Fredrickson et al. (1988) underscore that as CEO’s stock holdings increase, it becomes less likely that he or she will be dismissed. Additionally, given the board is in charge of evaluating CEO proposals and eventually dismissing a CEO, the board may also affect a CEO’s perceived risk of job loss, as control rights allow directors to enforce their will. Thus, Bhagat and Bolton (2013) find that a) the probability of dismissal is positively correlated with stock ownership by board members and b) firms are less likely to engage in value-destroying activities, when the board holds ownership.

The notion that ownership influences a CEO’s job security has been mostly analyzed in the domain of classical agency theory, in which self-serving agents protect their job positions against their principals. The role of CEO and board ownership, from a behavioral perspective, is unclear. As a matter of fact, job security remains a core driver of employment risk and, hence, of CEO risk bearing, together with negative changes in CEO wealth (Wiseman & Gómez-Mejía, 1998). The combination of these two forces helps better understand the true sources of CEO risk bearing and, hence, her willingness to take risk. Additionally, the consideration of board ownership may shed further light on whether and how risk preferences of both the board and the CEO interact.

CEO Ownership and Innovation Investment among Italian Firms

Classical agency research has long examined the relationship between CEO ownership and innovation investment. Accepting that innovation investment is risky and might pay off in the long run, if ever, agency scholars hold that self-serving CEOs will reduce such investment (Dalton, Hitt, Certo & Dalton, 2007; Demsetz & Lehn 1985; Shleifer & Vishny, 1997). Incentives are thus needed to alter CEO propensity toward innovation. CEO ownership is argued to align the risk preferences of the CEO with those of the shareholders, so as to foster innovation investment (Jensen & Meckling, 1976). At the same time, however, CEO ownership may also lead to entrenchment, whereby the CEO can forestall shareholder pressures, so as to reduce innovation investment (Morck, Shleifer & Vishny, 1988). Published studies have provided evidence in support of the two effects (Agrawal & Mandelker 1987; Hoskisson et al. 2002; Beyer, Czarnitzki & Kraft, 2012; Driver & Guedes, 2017).

In recent times, Wowak, Gómez-Mejía & Steinbach (2017) have called for more research on incentives other than the widely examined stock options, such as stock ownership. Furthermore, they have recommended to extend research in contexts other than the United States, whereby stock options are a predominant form of inducements. Italy represents a useful setting for this inquiry.

First, compared to the United States, Italy stands at the opposite end of the range of equity incentives, with limited adoption of stock options and the extensive use of ownership (i.e., insider holdings). This property is attractive, as it allows the study of CEO ownership as a primary source of incentives, downplaying the role of confounding effects directly or indirectly associated with stock options (Hall, 2000; Kadan & Swinkels, 2008). Indeed, stock options predominate in the United States, and their effects may overwhelm and potentially offset inducements by alternative incentive mechanisms, such as stock ownership (see Wowak et al., 2017). Second, distinct from the United States, where the stock ownership granted to CEOs is a fractional portion of total share holdings, Italy is characterized by a larger portion of ownership in the hands of insiders, allowing examination of the incentives along a broader range of values held by individuals at the top of the organizations.

Overall, the Italian firms offer a unique contextual opportunity to examine the effect of CEO and board ownership as a primary source of incentives. It is consistent with recommendations to choose contexts whereby stock ownership is the predominant form of incentives (O’Brien & David, 2014).

Hypothesis Development

CEO Equity Holdings and Firm Innovation

We predict that innovation investment exhibits an inverted U-shaped relationship with CEO ownership. We follow Haans et al. (2016), according to which an inverted U-shaped relationship requires the identification of two latent mechanisms at work along with rising values of the independent variable (2016, p. 1178). The first of the two mechanisms is employment risk; the second mechanism is represented by wealth risk. We elucidate the two effects below.

With regard to employment risk, job security is a core element of CEO wealth. It is even more important than stock options or other equity-based incentives, given an individual’s standard of living is primarily based on his or her job position and associated base compensation (Larraza-Kintana et al., 2007; Wiseman & Gómez-Mejía, 1998). As a result, CEOs acutely perceive employment risk. Indeed, behavioral research on instant endowment (Thaler, 1980) suggests that individuals instantly endow their perceived wealth, and this effect is stronger for more secure sources of wealth (Wiseman & Gómez-Mejía, 1998). Thus, CEOs primarily ensure preservation of their basic source of wealth, and only when their wealth is protected, will they shift their focus toward uncertainty and the possible increases of some portions of that wealth (1998, pp. 140–141).

In this regard, CEO ownership offers control rights to a CEO, which provide protection against dismissal. According to Fredrickson et al. (1988, p. 265), “as a CEO’s stock holdings increase, it becomes less likely that he or she will be dismissed.” In addition, he or she will have greater power to forestall challenges to his or her authority (McEachern, 1975) as well as greater discretion in resource allocation and insulation from possible job loss (Stulz, 1988). Thus, as CEO ownership rises, the CEO risk bearing associated with job loss is attenuated, mitigating perceived employment risk (i.e., less risk bearing) and enhancing the willingness to undertake risk-laden innovation investments. Specifically, (a) when a CEO holds no or very limited equity ownership, he or she will be highly risk averse and will minimize innovation investment. Without protection against dismissal, failures of innovation investments will trigger shareholder concerns, erode legitimacy, and ultimately result in dismissal. CEOs will thus minimize investments to avoid the potentially negative scenarios arising from risky investments; (b) as stock holdings rise, a CEO will be more inclined to take risks, as greater control rights offer protection against shareholders’ concerns, should investments fail to yield the expected results.

Adding to the effect above, with increasing control rights and diminishing employment risk, CEOs are also in a better position to appreciate return uncertainty from investments and the possibility for upside potential (see Martin et al., 2013; Wiseman & Gómez-Mejía, 1998). Therefore, increases in CEO ownership are associated with both (a) increased protection from dismissal in the event that an innovation investment fails to yield positive returns (Buchholtz, Young & Powell, 1998) and (b) an appreciation of uncertainty, including the possibility of potential gains (Martin et al., 2013).

The effect of risks on job security is likely to taper off and stabilize as CEO ownership rises above a midway point. Indeed, the marginal benefits of additional control rights are highest when levels of CEO ownership are relatively low, given they can significantly contribute to reduced employment risk. However, such benefits weaken as further additions of control rights accumulate and CEO ownership becomes very large This effect is due to the well-recognized phenomenon of positive but diminishing marginal effects of control rights (e.g., Bjuggren, Eklund & Wiberg, 2007; Claessens & Fan, 2002; Morck et al., 1988).

The second latent mechanism associated with risk bearing is wealth risk. First, as CEO ownership rises, CEOs will become progressively less willing to take risk. Risky investments entail both positive and negative changes in CEO wealth. Yet, under the assumption of loss aversion, the CEO weighs potential losses more than possible gains. As CEO ownership becomes large, she/he will thus perceive a greater threat to wealth since, should a risky investment fail, he or she will bear a large portion of the firm’s economic losses (Martin et al., 2013). Second, at very high levels of CEO ownership, concerns other than financial returns, such as socio-emotional utility, add to the wealth effect, and exacerbate risk aversion (see Berrone, Cruz & Gómez-Mejía, 2012). Indeed, as CEO ownership becomes large, a CEO begins to also appreciate utilities other than financial wealth, such as control, influence, and identity, which utilities further attenuate the search for wealth-maximizing opportunities. For example, a study of Spanish olive oil manufacturers found that a sizable portion of executives with majority ownership stakes in their firm willingly sacrificed the wealth opportunities from risky investment, so as to retain control (Gómez-Mejía, Haynes, Núñez-Nickel, Jacobson & Moyano-Fuentes, 2007). Hence, not only does CEO ownership decrease firm risk (a purely financial wealth effect) it does so more rapidly (i.e., a steeper negative slope) at the high levels of ownership, as potential of socio-emotional wealth losses add to concerns for purely financial losses (Gómez-Mejía et al., 2007).

Overall, as CEO ownership rises, risk bearing implied by “employment risk” weakens due to protection against dismissal. Meanwhile, risk bearing inherent in “wealth risk” strengthens due to larger wealth at risk of loss. As specified by Haans et al. (2016), these two latent mechanisms do not offset each other but rather have an inverted U-shaped relationship due to their differing marginal effects at low levels (for employment risk) and high levels (for wealth risk) of CEO ownership.¹

Therefore, looking at both the employment and wealth risks associated with control rights, we expect a curvilinear inverted U-shaped relation between innovation investment and CEO ownership: (1) when CEO ownership is low, CEOs limit their risk exposure, as taking risks implies a major threat of job loss; (2) as CEO ownership rises, CEOs will boost innovation investment, as they are protected against dismissal (Wiseman & Gómez-Mejía, 1998); (3) at high levels of ownership, CEOs lower risk taking to protect financial wealth and firm control. Combining these arguments, we predict that CEO ownership has an inverted U-shaped relation with risk-laden innovation investments. Stated formally:

Hypothesis 1: CEO ownership has an inverted U-shaped relationship with innovation investment.

The Moderating Effect of Board Ownership

We predict that the hypothesized effect of CEO ownership is moderated by board ownership in such a way that the inverted U-shaped relationship between CEO ownership and risky innovation investment weakens with increased board ownership. We develop our logic by drawing on prospect theory’s insights on interactive risk preferences (Chowdhury et al., 2018; Levy, 1996), specifically the phenomenon known as “concession aversion” (Kahneman, Knetsch & Thaler, 1990).

Research in this domain shows that, in joint decision-making, decision partners are exposed to “concession aversion” (Kahneman et al., 1990), whereby one actor provides concessions to the demanding partner in exchange for receiving some benefits. In this setting, the loss aversion and endowment effect imply that actors have a tendency to (a) “treat concessions they give as losses and compensation they receive as gains and (b) overvalue what they give up (i.e., losses), relative to what they get (i.e., gains)” (Levy, 1996, p. 187). As we outline below, “concession aversion” reflects the position of owner-directors when they are requested (by CEOs) to undertake risky investments.

First, the extant research suggests that concession aversion becomes stronger as the loss from the exchange becomes greater to the conceding partner. This reflects the position of directors owning stock in the firm’s equity when requested (by a CEO) to increase risky investment. Specifically, in CEO–board relations, the CEO is in charge of developing strategy and submitting proposals to the board. Based on Hypothesis 1, as CEO ownership rises from low to moderate levels, CEOs are more inclined to undertake innovation investments and are likely to frame proposals to the board in a way that encourages risk taking (Gnyawali, Offstein & Lau, 2008). However, directors are likely to resist these attempts, and they will do so to a greater extent as the board ownership increases. Indeed, under high levels of board ownership, a larger portion of directors’ wealth is tied to firm equity. Accordingly, directors will view a CEO’s proposal for risky investments as an invitation to place a larger portion of their wealth at risk, either by giving up dividends (given that financial resources are retained inside the firm to realize innovation investment) or by providing new funds to foster investments. In other words, a CEO’s proposal to boost innovation investment equates to the CEO asking directors to bear immediate wealth losses (i.e., investment made today) in exchange for a promise of future gains (i.e., possible wealth increases in the future). However, under the BAM’s assumption of loss aversion (Wiseman & Gómez-Mejía, 1998), directors eschew such an alternative: they weigh certain losses more than risky gains and will prefer the status quo, resisting the CEO’s proposals to further boost innovation investment. For any given level of CEO ownership, the hypothesized inverted U-shaped relation will be attenuated as the board ownership increases.

Second, concession aversion has been found to become “even more pronounced if an actor has additional reasons for perceiving a negotiated agreement as a loss” (Levy, 1996, p. 187). This phenomenon points to the different framing of decision-making between the CEO and the board. Indeed, (1) by proposing greater innovation investment, a CEO holding stock ownership also places personal wealth at risk of loss; yet, he or she will keep control of the invested resources (i.e., management of the innovation initiative) and will play with others’ (directors’) wealth; (2) in contrast, directors experience full loss from the exchange, giving up their current wealth to the demanding CEO, who will then manage those resources on their behalf. This additional perceived loss, implied in the exchange between interacting partners, further decreases the likelihood that owner-directors will acquiesce to a CEO’s demands for greater innovation investing. Overall, research on interactions among bargaining partners in joint decision-making (Butler, 2007; Kahneman et al., 1990; Levy, 1996) suggests that CEO demands to increase innovation investing will be rejected by directors—particularly in circumstances with larger board ownership.

In sum, the firm risk reflects the interaction of CEO and board risk preferences, which could lead to contradictory risk preferences. This is particularly true when CEO ownership is at moderate levels, where the CEO is more willing to increase innovation investment while the board is dominated by directors holding a large stake in the firm equity. Recognizing the reciprocal nature of CEO–board interactions in determining firm risk leads to the following prediction:

Hypothesis 2: The inverted U-shaped relationship between CEO ownership and innovation investment weakens as board ownership rises.

Methods

The sample for this study was drawn from a survey of the 1000 largest Italian manufacturing firms ranked by sales, as listed by Dun & Bradstreet. The key informant for the dependent variable was the Chairman of each firm (another director, under CEO duality), whereas information for the independent variables was provided by the CEO. This strategy resolves problems of common method bias, which typically affects research based on a single respondent. To test for nonresponse bias, we collected archival data for companies in the sample as a whole (the 1000 targeted firms). Responses were compared with this larger sample to ascertain whether respondents and non-respondents differed significantly with respect to firm size and performance using the Kolmogorov–Smirnov two-sample test, which indicated that the respondents and non-respondents were from the same population. Additional data were collected from patent registers and the AIDA and CERVED databases.

In the spring of 2009, we sent a questionnaire to these 1000 firms and collected 108 responses. Surveys of top managers often suffer from low response rates, especially those of chief executive officers, which often net response rates around 10% (Matsuda, Vanderwerf & Scarbrough, 1994; Welbourne & Wright, 1997). Consistent with other recommendations (e.g., Carpenter & Westphal, 2001; Fowler, 1993; Groves, Cialdini & Couper, 1992), several steps were taken to increase the response rate: (1) an in-depth pretest was used to streamline the questionnaire, making it more appealing and easier to complete; (2) requests for participation emphasized the need for further research on the board of directors and tried to engage respondents’ natural interest in the topic; and (3) CEOs were sent a follow-up letter with the survey 3 months after the initial mailing.

Dependent Variable

Innovation investment was measured by three items, asking CEOs to rate on a seven-point Likert scale (1 = strongly disagree to 7 = strongly agree) whether their firm invests heavily in (a) R&D expenditures, (b) product innovation, and (c) manufacturing/process innovation (Manzini, Lazzarotti & Pellegrini, 2017; Zahra, 1996). An iterated principal factor model showed that the three items loaded on a single factor, with an eigenvalue of 2.11. The Cronbach alpha for this measure was 0.78.

In order to further test its construct validity, we correlated our measure of innovation with a measure of firm R&D intensity (R&D/sales). Though firms in Italy are not obliged to report R&D expenditures, some do in their shareholder reports. Thus, we collected R&D expense data from firms that voluntarily reported this expense. The correlation between our measure and this measure of R&D intensity was positive and significant (r = .32; p < .01), providing support for the validity of our measure. We also correlated our measure of innovation with the reported number of patents filed by the firms in our sample, finding a positive correlation (r = .27; p < .01). Published research also shows that innovation exhibits a positive association with slack resources (Balakrishnan & Fox, 1993; Baysinger & Hoskisson, 1989). In accordance with this logic, our measure of innovation was positively and significantly correlated with slack resources (r = .37; p < .001). These tests support the construct validity of our measure of firm innovation.

Independent Variables

To measure CEO ownership, we used the percentage of CEO holding in firm equity. Board ownership is computed as the percentage of ownership held by directors.

Control Variables

We included firm size, measured as the logarithmic transformation of the number of employees, because several studies have shown its relation to innovation (Damanpour, 2010). Firm performance was measured as relative ROA, that is, as the difference of firm ROA relative to median industry ROA (Baysinger & Hoskisson, 1989). We controlled for industry innovativeness using the CIS index (Fraga, Martins & Anciaes, 2008), which captures the intensity of innovation within a given industry. To control for a firm’s past strategic orientation toward innovation, we included past innovation, measured as the number of patent applications filed by the firm over the 3 years immediately preceding the survey year. We further controlled for financial slack, measured as the firm’s current ratio (Bromiley, 1991). To account for past trends in performance, we included a control for historical performance trend, measured by asking the CEO to rate the performance trend before the crisis, using a seven-point Likert scale between “continuously deteriorating over time” and “continuously improving over time.” We then created a dummy variable, which equals 1 for firms with a response above 5. Further, because the BAM includes target difficulty as an important variable affecting CEOs’ risk propensity, we included a variable named target difficulty, which was measured as the sum of two items: (a) “the targets set by this board are very challenging and difficult to achieve” and (b) “the targets are updated over time, and their difficulty is maintained.” Cronbach’s alpha for this measure was 0.76. We controlled for CEO age, as it influences risk preferences (MacCrimmon & Wehrung, 1990), board background diversity, and CEO bonus (Wiseman & Gómez-Mejía, 1998).

Estimation Procedures

Given the cross-sectional nature of the data, we estimated the model using a simple ordinary least squares regression. We examined potential issues of multicollinearity by inflation factors (vif) and the condition numbers. None of the vifs exceeded 10, and the average vif was below 2.0. Additionally, an empirical test revealed that outliers did not affect results, as dfbetas were below the threshold of 1 (Bollen & Jackman, 1985). The power test indicated that the sample size was acceptable at the 80% level (Cohen, 1988, 1992), even for the most complex model of interaction.

Results

Table 1 displays the descriptive statistics and the correlation matrix for all variables used in this study. Table 2 provides regression results from the tests of the hypotheses. Standardized variables for CEO ownership and the proportion of owner-directors were used.

Table 1.

Descriptive statistics.

	Variables	Mean	Std. dev	1	2	3	4	5	6	7	8	9	10	11	12
1	Firm innovation investment	11.08	2.37
2	Firm size	5.99	1.27	0.27
3	Industry innovativeness	6.97	2.51	0.14	−0.07
4	CEO age	54.95	7.57	0.11	0.20	−0.11
5	Board background diversity	5.09	1.90	0.07	0.11	0.07	−0.25
6	Past innovation	1.81	3.03	0.27	−0.01	0.29	−0.07	0.06
7	CEO bonus	4.24	7.44	−0.07	0.11	0.14	−0.25	0.16	0.06
8	Firm financial slack	1.66	0.66	0.37	0.13	0.03	0.17	−0.28	−0.04	0.06
9	Target difficulty	6.18	3.17	−0.15	0.00	0.14	0.10	−0.15	0.21	−0.13	−0.16
10	Historical performance trend	0.43	0.50	0.14	−0.09	0.05	0.19	0.02	−0.03	−0.03	0.20	0.08
11	Firm relative performance	1.23	7.57	−0.36	−0.02	0.02	0.06	0.09	−0.10	0.10	−0.14	0.19	−0.07
12	Board ownership	12.75	10.51	−0.32	−0.18	−0.10	−0.17	−0.01	−0.07	0.02	−0.24	−0.08	−0.17	0.18
13	CEO ownership	7.46	6.10	0.26	−0.15	0.10	−0.04	−0.03	0.25	−0.04	−0.13	0.13	0.04	0.08	0.22

N = 108. |r| > .19 sig at .05.

Table 2.

Regression results. Dependent variable: firm innovation investment.

	Model 1		Model 2		Model 3
Intercept	6.506	***	7.894	***	7.945	***
	(0.295)		(0.332)		(0.316)
Firm size	0.402	*	0.301	*	0.321	*
	(0.171)		(0.133)		(0.128)
Industry innovativeness	0.086		−0.060		−0.043
	(0.085)		(0.076)		(0.075)
CEO age	0.011		−0.006		−0.016
	(0.028)		(0.021)		(0.020)
Board background diversity	0.158		0.119		0.118
	(0.100)		(0.095)		(0.092)
Past innovation	0.223	**	0.176	**	0.162	*
	(0.068)		(0.066)		(0.067)
CEO bonus	−0.044		−0.020		−0.029
	(0.024)		(0.019)		(0.020)
Firm financial slack	1.000	***	0.679	**	0.586	*
	(0.294)		(0.250)		(0.253)
Target difficulty	−0.112		−0.113		−0.143	*
	(0.069)		(0.060)		(0.058)
Historical performance trend	0.343		0.233		0.181
	(0.393)		(0.302)		(0.310)
Firm relative performance	−0.555	*	−0.517	**	−0.529	**
	(0.215)		(0.170)		(0.178)
Board ownership	−0.308		−0.578	**	−1.078	***
	(0.215)		(0.173)		(0.253)
CEO ownership			1.145	***	1.100	***
			(0.179)		(0.180)
CEO ownership squared			−1.261	***	−1.362	***
			(0.239)		(0.230)
Interaction: CEO ownership x					0.158
Board ownership					(0.199)
Interaction: CEO ownership squared x					0.522	*
Board ownership					(0.229)
R-squared	0.425	***	0.643	***	0.667	***
R-squared change			0.218	***	0.024	***
Adjusted R-squared	0.359	***	0.593	***	0.612	***
F-stat	9.18	***	21.36	***	24.34	***

N = 108. Robust standard errors in parentheses.

* p<0.05; ** p<0.01; *** p<0.001.

Hypothesis 1 predicts that a curvilinear, inverted U-shaped relationship exists between a firm’s innovation and CEO ownership. In Model 2, the positive and significant coefficient for CEO ownership (β = 1.145; p < .001) combined with the negative and significant coefficient for CEO ownership square (β = −1.261; p < .001) provide empirical support for Hypothesis 1, suggesting that a curvilinear inverted U-shaped relationship between firm innovation and CEO ownership exists. As expected, at both low and high levels of CEO ownership, firm innovation is lower, whereas at moderate levels of CEO ownership, firm innovation is higher. Further analyses revealed that the inflection point occurs at approximately 11% in our sample, which is consistent with previous studies examining ownership and related variables (Morck et al., 1988; Short & Keasey, 1999).

Hypothesis 2

predicts that board ownership interacts with CEO ownership, thus weakening the inverted U-shaped relationship between CEO ownership and innovation investment. To test this hypothesis, we followed the instructions of Haans et al. (2016), according to which the moderator must interact with both the first- and second-order terms of the quadratic function. These scholars point out that the weakening of the inverted U-shaped relationship “does not depend on any other coefficient than β4 [the interaction between the moderating variable and the squared terms of the independent variable], nor on specific values of Z [the moderator]” (2016, p. 1187); specifically, “A flattening occurs for inverted U-shaped relationships when β4 is positive” (p. 1187). The results of our regression analysis are reported in Table 2. As Model 3 of Table 2 shows, the interaction of board ownership and CEO ownership squared is positive and significant (β = .522; p < .05), suggesting that, as board ownership rises, the inverted U-shaped relationship between CEO ownership and innovation investment weakens. Figure 1 displays this effect (Aiken & West, 1991). At the inflection point, innovation investment decreases by approximately 2 standard deviations as board ownership increases.

Figure 1.

Interaction of CEO ownership and board ownership on Firm innovation investment.

Robustness Test

We conducted several robustness tests. In a preliminary test, an exploratory factor analysis revealed that our items for the dependent variables and predictors were empirically distinct, identifying two factors, with factor loadings for the dependent variable of .80 or greater (.07 on the alternative construct) and those for the predictors of 0.7 or greater (0.4 on the alternative construct).

We performed the following analyses. First, since our respondents differ with regard to board structures with combined CEO and Chairman positions (19%), we ran regressions including CEO duality as a control variable, which showed that our results were largely unaffected by this factor.

Second, to account for potential endogeneity bias, we ran several robustness tests. First, we examined the potential impact of unobserved confounding variables using the approach in Frank (2000). This method is based on the notion that for an unobserved variable to affect the results it needs to be correlated with both the x-variable and the y-variable (controlling for the other variables). Frank (2000) derives the minimum correlations necessary to turn a statistically significant result into a borderline insignificant result. The Impact Threshold for a Confounding Variable (denoted as ITCV) is defined as the lowest product of the partial correlation between y and the confounding variable and the partial correlation between x and the confounding variable that makes the coefficient statistically insignificant. If the ITCV is high (low), the OLS results are robust (not robust) to omitted variable concerns. We calculated the values of this indicator for our variables of interest: CEO ownership, Board ownership, and Firm relative performance. The values were high. Specifically, using the method of Larcker and Rusticus (2010), the values are higher than that of the highest control variable included in the analysis. Therefore, following Larcker and Rusticus (2010), under the assumption that we have a good set of control variables (e.g., firm size and slack resources), this test provides some confidence in the estimates of our analyses.

Additionally, we performed an endogeneity analysis to ascertain potential sources of bias in our analysis. As outlined by Semadeni, Withers & Certo (2014), “addressing endogeneity begins with testing for its presence since endogeneity remediation, in its absence, yields less efficient estimates” (p. 1076). Semadeni et al. (2014) propose using the Hausman test to “examine whether the independent variable of interest is in fact endogenous” (p. 1076). Based on the available research (e.g., Kim & Lu, 2011; Palia, 2001), we used CEO tenure and board average tenure as instruments to test for the presence of endogeneity. The Durbin–Wu–Hausman test was non-significant, suggesting that our OLS results are not biased and efficient. Therefore, endogeneity does not constitute a fatal flaw in our analyses.

These results support the consistency of our results. However, we caution the reader not to make any causal inferences. While our dataset has attractive properties, it is based on a cross-sectional design. Therefore, the purpose of our empirical tests was to lend credibility to our theory (Schulze, Lubatkin & Dino, 2003, p. 190). Further analyses with panel data will be needed to confirm our results and enable causal inferences.

Discussion

Extending the BAM (Wiseman & Gómez-Mejía, 1998), this study addresses why and how CEO ownership influences innovation investment by looking at both sources of risk bearing: wealth risk and employment risk. The results show that CEO ownership has an inverted U-shaped relationship with firm innovation investment. Furthermore, accounting for the board role as a governance device responsible for evaluating/dismissing the CEOs, the curvilinear effect of CEO ownership weakens as board ownership rises. This study makes several contributions to the BAM and to the broader research on equity incentives.

First, this study outlines the incentive properties of ownership from a behavioral perspective. The extant BAM literature emphasizes the wealth effect of CEO ownership, equating its properties to those of alternative forms of equity incentives, such as stock options. In so doing, it disregards the specific features of CEO ownership, which incorporates control rights to diminish employment risk (Berns et al. 2021; Boeker, 1992). By recognizing control rights as a mechanism that protects against dismissal, this study extends the previous BAM framing of CEO ownership. Accounting for both sources of risk bearing, this revised view suggests that CEO ownership does not simply reduce risky investments, as previous BAM research posited (Sanders, 2001; Alessandri & Seth, 2014); rather, it first enhances and then stifles innovation investment. Thus, this study responds to the call from BAM scholars to conceptually elucidate the specificities of any single incentive mechanism (Devers, McNamara, Wiseman & Arrfelt, 2008). Future research could draw from this study to further examine employment risk associated with alternative incentive mechanisms, such as golden parachutes, or stock ownership following option exercise.

In addition to refining the BAM framing of CEO ownership, this study also recasts the view of job security and employment risk, which has long been established by classical agency theory. Standard agency theory commonly conceives of CEO employment security in terms of entrenchment, or the defensive tactic that an agent employs to defend his or her job against the principal’s interests (Boeker, 1992; Gompers, Ishii & Metrick, 2003). In contrast to this economic rationale, a behavioral perspective suggests that employment security is a valuable mechanism favoring the principal shareholders, as it offers security to the CEOs against excess vulnerability in the face of risky investments, thus encouraging risk taking. Therefore, based on this study, the significance and relevance of employment security comes to be significantly revised, as it represents an alignment (not a misalignment) mechanism in principal–agent relationships.

Relatedly, the behavioral view proposed in this study reframes the standard agency theory perspective on the incentive effect of CEO ownership. Classical agency theory holds that CEO ownership incentivizes risk taking by promising wealth increases to the CEO (Gómez-MejíaGómez-Mejía, 1994). Based on behavioral assumptions, this study suggests, instead, that CEO ownership incentivizes risky investments because of the protection against dismissal (job security) it affords the CEOs in the face of risky investments.

A second contribution of the study involves a refinement of the BAM. This study advances the understanding of employment risk as a source of risk bearing. Employment risk remains an underdeveloped topic in BAM research (Devers et al., 2007, 2008; Martin et al., 2013; Sanders, 2001). Published studies restrict its framing to CEOs’ perceptions of whether or not they will be dismissed in the near term (Larraza-Kintana et al., 2007). Alternatively, the perception of employment risk is inferred indirectly through contextual influences, such as performance downfalls (Martin et al., 2013). A comprehensive framing of employment risk as an inherent property of incentive mechanisms is missing, despite the fact that it is present in various tools, such as stock ownership, golden parachutes, severance provisions; and that the elements of CEO ownership are ubiquitous worldwide. By unraveling the role of control rights, this study reframes employment risk as a property of incentive mechanisms, showing that it can be perceived more or less intensely, conditional on control rights. This insight can be of value for scholars examining stock options or restricted stocks, who only focus on one component of risk bearing (i.e., wealth risk) reporting conflicting findings: undetected employment risk could explain the mixed results of previous studies on option wealth.

Additionally, this study refines the BAM conception of employment risk, outlining its role in gain versus loss contexts. The few BAM studies examining employment have focused on loss contexts, or contexts in which CEOs are anticipating the possibility of dismissal due to firm failure (Larraza-Kintana et al., 2007) or performance downfalls (Martin et al., 2013). In these settings, the evidence suggests that employment risk triggers risk taking. We extend the BAM view of employment in gain contexts, that is, in contexts in which CEOs are not immediately threatened by firm failure, to show that dismissal may actually be caused by CEO risky investments. We suggest that, differently from loss contexts, employment risk in gain contexts may engender risk bearing, thereby reducing risk taking. Hence, reduced employment risk—due to control rights—attenuates risk bearing and fosters innovation investment. Theoretically, combining the insights from this study with those of Larraza-Kintana et al. (2007) and Martin et al. (2013) provides a more comprehensive view of employment risk in accordance with the contingency framework set up by the BAM, explicating the functioning of such risk in gain versus loss contexts.

Further, this study extends the BAM framework by considering interactive CEO–board risk preferences at the top. By explicitly considering the role of the board, this study demonstrates that the effects of equity incentives held by CEOs are contingent on other actors’ willingness to invest. By leveraging prospect theory’s insights on exchanges among bargaining actors (Kahneman et al., 1990), this study advances the BAM, moving from the framing of CEOs’ individual risk preferences toward the interactive risk preferences of the CEO and the board, showing that the CEO’s risk preferences need to be defined jointly with those of other relevant actors participating in firm decision-making.

In examining the interaction of CEO and board ownership, this study also contributes to the long-standing debate about the ‘bundle’ of governance mechanisms and their effect on decision-making.

Much research in this field explores whether distinct mechanisms, such as equity-based incentives and boards of directors, reinforce (complementarity effect) or substitute for (substitution effect) one another, thereby shaping CEO decisions (for a review, see Martin et al., 2019). However, these research efforts mostly focus on equity incentives involving board monitoring (i.e., CEO duality or board independence), disregarding the interaction between directors’ and CEO’s incentives. One exception (Deutsch, Keil & Laamanen, 2010) examines stock options in US public companies. Deutsch et al. (2010) conclude that, in order to boost risky investment, stock options can be granted to the directors instead of the CEOs. We extend this line of research to stock ownership and document a more complex picture of how incentives for the board and the CEO may interact. We suggest that directors’ ownership may actually curb the effect of CEO ownership. Greater directors’ ownership becomes progressively more detrimental for investing from low to moderate levels of CEO ownership, but it is less impactful from moderate to high levels of CEO ownership.

Overall, this study provides an alternative perspective on decision-making at the top and offers a potential explanation for why some previous research on the monitoring role of boards may have failed to find a consistent impact on organizational outcomes. In other words, this study breaks away from the hierarchical view that has dominated most agency-based research on corporate governance by recognizing that boards are intermediary agents between shareholders and executives, and their incentives also matter, influencing innovation investment jointly with the CEO incentives.

Finally, our findings contribute to the extant debate on the explanatory power and generalizability of agency theory. While we do not perform a cross-country, comparative analysis, we do offer some insights on equity incentives, as represented by ownership in a particular context (i.e., Italy), which is characterized by large owners, inside holdings, and an agency problem characterized by principal–principal conflict.² Proponents of agency theory have long maintained that incentives improve the interest alignment between principals and agents, and therefore such incentives should be provided to improve firm decision-making (Dalton et al., 2007). Critics of agency theory (Bebchuk, Fried & Walker, 2001; Bebchuk & Fried, 2004) point instead to the lack of evidence in support of the theory’s primary solutions for controlling agency costs and suggest that stock-based compensation simply provides self-serving executives with an alternative avenue for extracting rents at the expense of shareholders. Importantly, this debate has been limited by a predominant focus on US corporations (Wowak et al., 2017), where (a) equity incentives mostly consist of stock options, allowing the examination of wealth effects (Hall, 2000; Kadan & Swinkels, 2008) at the expense of other important incentive effects, such as employment risk (Larraza-Kintana et al., 2007), and (b) firms placed under inquiry are public companies with fractional ownership, in which CEOs and directors hold minimal ownership in the firm, if any. In fact, the effects of incentives may change in differing contexts, particularly when considering incentives other than stock options (i.e., stock ownership) or broader ranges of variation in the equity held (i.e., ownership stakes large enough to prevent dismissal). By focusing on stock ownership in Italy—a context characterized by a wider diffusion of large stock ownership among directors and the CEO—our findings suggest that equity incentives may either foster (and function as alignment devices) or hinder (and function as misalignment mechanisms) innovation investment, depending on the distribution of ownership among the CEO and directors.

Managerial Implications

Boards of directors, firm shareholders, consulting companies, and regulators have focused considerable attention in recent years on how CEO incentives may foster innovation investment. This study offers valuable information to these actors, especially with regard to CEO ownership. The focus on CEO incentives is based on the assumption that, in order to protect the interests of shareholders, the main effort should be exerted to influence the CEO, who is the most prominent decision maker at the top. The present study emphasizes that CEOs make decisions by interacting with the board, and hence the effect of CEO ownership is conditional on other actors’ motivation to pursue innovation and change. Practitioners are thus recommended to focus not only on CEO ownership, but also on the equity stakes held by directors, which may offset the positive incentive of CEO ownership.

Limitations

While offering some insights on equity incentives and innovation investment, this paper is not devoid of limitations. First, given the absence of accessible archival data on equity pay in Italy, we adopted a survey-based, cross-sectional design for our research. While we performed several endogeneity tests, we caution readers not to infer causal effects from this study. More extended research across differing countries and with extended datasets is needed to infer causality. Second, recent research acknowledges that studies on risk taking have ignored the role of probability (Holmes, Bromiley, Devers, Holcomb & McGuire, 2011) due to the challenge of examining both the size and probability of losses. Research on both elements would provide a wide and interesting opportunity for researchers to explore the role of incentives on decision-making under uncertainty. Third, while advancing knowledge on equity incentives in a different context relative to the predominant US public companies, this study suffers from the commonly shared limitation of generalizability to other institutional settings. Future research may draw on this study’s insights to perform cross-country analyses of equity incentives across distinct institutional and cultural settings (Hofstede, 1983).

Conclusions

Management research recognizes that CEO incentives are a potential remedy for the problem of underinvestment. The BAM has emerged as a refined agency framework for executive incentives, in which CEOs’ perceived risk, or risk bearing, is shaped by two kinds of risk: wealth risk and employment risk. While scholars have applied this framework to examine the effect of CEO ownership, they have only looked at the first component of risk bearing, the wealth effect. This article advances research in this domain by exploring the effects of CEO ownership related to both sources of risk bearing (i.e., wealth risk and employment risk). Further, it draws on the insights of prospect theory regarding interactive risk preferences to advance knowledge on how the board and CEO ownership interact to affect innovation investment. The findings contribute to research on the BAM, showing that CEO ownership does not always reduce risk. It may also increase risk, and the effect is contingent on board ownership.

Footnotes

Declaration of Conflicting Interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) received no financial support for the research, authorship, and/or publication of this article.

ORCID iD

Fabio Zona

Notes

Associate Editor: Devaki Rau

Author Biographies

Fabio Zona (PhD in Management, Bocconi University) is Full Professor of Business administration at the University of Trento, Italy. His research interests span corporate governance and managerial decision-making, with a particular focus on boards of directors and executive incentives from a behavioral perspective. His research has been published in the Journal of Management, Research Policy, Journal of Management Studies, British Journal of Management, European Management Journal, Journal of Business Ethics, Small Business Economics.

Marco Zamarian (PhD in Management, University of Bologna) is Associate Professor of Organization theory and Organizational Behavior at the University of Trento, Italy. His main research interests include group and executive decision-making, organizational routines and organizational resilience.

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