Nonfinancial performance measures and risk-taking: evidence from the oil and gas industry

Kim, Minjeong

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https://hdl.handle.net/2142/110657 Copy

Description

Title

Nonfinancial performance measures and risk-taking: evidence from the oil and gas industry

Author(s)

Kim, Minjeong

Issue Date

2021-04-13

Director of Research (if dissertation) or Advisor (if thesis)

Chen, Clara

Doctoral Committee Chair(s)

Chen, Clara

Committee Member(s)

• Brown, Nerissa
• Du, Fei
• Li, Laura
• Irani, Rustom

Department of Study

Accountancy

Discipline

Accountancy

Degree Granting Institution

University of Illinois at Urbana-Champaign

Degree Name

Ph.D.

Degree Level

Dissertation

Keyword(s)

• Risk-taking
• executive compensation
• nonfinancial performance measure

Abstract

This study examines the relation between nonfinancial performance measures (NFPMs) and firms’ risk-taking using CEO compensation contracts in the oil and gas industry (SIC 1311). The oil and gas industry provides an ideal setting for my study because firms in this industry are required to disclose detailed information about their risk activities, which allows me to develop empirical measures for firm risk-taking behavior. I find NFPMs that incentivize risk-taking are effective. More importantly, I find that firms with these NFPMs also invest in more low-risk activities and achieve better short-term financial performance compared to other firms. These results are consistent with my hypothesis that explicit incentives to invest in risky projects induce risk averse managers to manage the associated downside risk of failure by allocating limited resources across other low-risk projects. My findings shed light on how NFPMs can potentially complement equity-based incentives and financial accounting measures to direct and motivate managers to take on risky projects as well as better manage firm performance.

Graduation Semester

2021-05

Type of Resource

Thesis

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Copyright and License Information

Copyright 2021 Minjeong Kim

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