Not all Risk Taking is Born Equal: The Behavioral Agency Model and CEO's Perception of Firm Efficacy
Geoffrey Martin, Nathan Washburn, Marianna Makri, Luis R. Gomez-Mejia
Human Resource Management · 2015 · Volume 54 · Issue 3
Abstract
We examine the relationship between agent (CEO) risk bearing and the quality of executive risk-taking outcomes, by examining the contingency effect of CEO perceived firm efficacy. In doing so, we extend the behavioral agency model (BAM) beyond predictions of risk magnitude to examining how CEO risk-taking outcomes differ qualitatively in response to risk bearing. We argue that CEO risk bearing (due to stock options or cash compensation) will positively influence performance outcomes in the presence of higher perceived firm efficacy. However, this positive influence reverses when efficacy is lower. We demonstrate the utility of firm efficacy in exploring the effect of agent risk bearing on performance outcomes and provide the insight that the CEO pay-performance relationship is influenced by the CEO’s perception of firm efficacy. © 2014 Wiley Periodicals, Inc.
Keywords
behavioral agency, perceived firm efficacy, risk, R&D
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