Choi, Seungho
[Verfasser:in];
Levine, Ross
[Verfasser:in];
Park, Raphael Jonghyeon
[Verfasser:in];
Xu, Simon
[Verfasser:in]
;
National Bureau of Economic Research
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Although corporate finance theory suggests how adverse shocks influence shareholder preferences toward corporate risk-taking and executive compensation, few researchers explore this relationship empirically. We construct a firm-year measure of unexpected shocks to environmental regulatory stringency. We find that adverse environmental regulatory shocks typically prompt corporate boards to reduce the risk-taking incentives of CEO compensation. However, this pattern is not uniform. Financially distressed firms exhibit milder reductions in compensation convexity, with some even increasing it, suggesting a "gambling for resurrection" strategy. Moreover, the strength of corporate governance influences shareholders' capacity to align executive incentives with changing shareholder risk preferences