Abstract
Purpose
This paper aims to examine the influence of chief executive officers’ (CEOs) social capital on the association between various compensation measures and their strategic risk-taking behaviour.
Design/methodology/approach
This study analysed 682 firms by applying a two-step system generalized method of moments and staggered difference-in-difference (S-DID) estimation techniques to uncover the links between executive compensation, strategic risk and social capital.
Findings
This study finds that CEO social capital strengthens the relationship between various forms of compensation and strategic risk, while weakening the relationship between option compensation and strategic risk. This paper also finds that an extensively networked CEO may exhibit a diminished inclination towards change as their tenure progresses. Further tests using S-DID reveal a decline in the relationship between compensation and strategic risk in firms transitioning from well-connected long-tenured insider to outsider. The findings remain robust after addressing endogeneity concerns using propensity score matching and entropy balancing.
Research limitations/implications
The findings underscore the significance of considering externally appointed CEOs’ career trajectories as continuous processes, especially when analysing their propensity for strategic change. This complements prior studies on CEO succession highlighting the significance of social capital for externally appointed CEOs.
Practical implications
As boards of directors frequently turn to CEO succession in pursuit of change in strategy, the findings suggest that they should not only assess CEO tenure but also the new CEO’s level of social capital when evaluating their propensity for change. Consequently, boards must take a more comprehensive approach to evaluating CEO experiences.
Originality/value
While this paper confirms that social capital moderates the relationship between compensation and strategic risk, it also reveals how this effect varies across different compensation types and stages of CEO tenure. Notably, it focuses on UK firms, highlighting context-specific dynamics in CEO succession and risk-taking behaviour.
This paper aims to examine the influence of chief executive officers’ (CEOs) social capital on the association between various compensation measures and their strategic risk-taking behaviour.
Design/methodology/approach
This study analysed 682 firms by applying a two-step system generalized method of moments and staggered difference-in-difference (S-DID) estimation techniques to uncover the links between executive compensation, strategic risk and social capital.
Findings
This study finds that CEO social capital strengthens the relationship between various forms of compensation and strategic risk, while weakening the relationship between option compensation and strategic risk. This paper also finds that an extensively networked CEO may exhibit a diminished inclination towards change as their tenure progresses. Further tests using S-DID reveal a decline in the relationship between compensation and strategic risk in firms transitioning from well-connected long-tenured insider to outsider. The findings remain robust after addressing endogeneity concerns using propensity score matching and entropy balancing.
Research limitations/implications
The findings underscore the significance of considering externally appointed CEOs’ career trajectories as continuous processes, especially when analysing their propensity for strategic change. This complements prior studies on CEO succession highlighting the significance of social capital for externally appointed CEOs.
Practical implications
As boards of directors frequently turn to CEO succession in pursuit of change in strategy, the findings suggest that they should not only assess CEO tenure but also the new CEO’s level of social capital when evaluating their propensity for change. Consequently, boards must take a more comprehensive approach to evaluating CEO experiences.
Originality/value
While this paper confirms that social capital moderates the relationship between compensation and strategic risk, it also reveals how this effect varies across different compensation types and stages of CEO tenure. Notably, it focuses on UK firms, highlighting context-specific dynamics in CEO succession and risk-taking behaviour.
| Original language | English |
|---|---|
| Journal | International Journal of Accounting and Information Management |
| Early online date | 7 May 2025 |
| DOIs | |
| Publication status | E-pub ahead of print - 7 May 2025 |