Executive compensation and risk taking: The impact of systemic crises

Alon Raviv, Elif Sisli-Ciamarra

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

Abstract

It is widely accepted that managerial compensation packages contributed to the excessive risk-taking practices that led to the onset of the Great Recession (2007-2009). We argue that the relationship between managerial compensation and risk taking is procyclical. A given level of performance incentives may result in significantly lower firm risk when economy is in a systemic crisis because managers face an increased employment risk during economic downturns. Students of finance who will become policy makers or who will sit on compensation committees would benefit from realizing that in order to implement a given level of firm risk, managerial compensation packages may need to be adjusted according to the state of the economy. The financial crisis of 2008 radically changed the goals and objectives of the financial education and professionalization of people, because at present the conditions of their employment require new forms of economic thinking and behaviour. Today, success in business is no longer determined by the ability to perform standard business processes and to manage them within the standard rules of management. In today's uncertain economic environment, it is not enough to possess the skills and abilities that students obtain under the uniform standards of education. The demand for professionals who are capable of preventing the bankruptcy of companies and ensuring their economic stability in the conditions of unbalanced economic system, harsh competition, and unpredictable changes in the environment of the companies' functioning has increased sharply. Ukraine has found itself among the countries most affected by the financial crisis. The scale of the crisis phenomena in the financial system and the national economy demonstrates the need to improve the training of bachelors and masters in the field of finance. A detailed analysis of the current practices of financiers' training at Ukrainian universities has allowed a definition of the following areas that need to be changed in line with the challenges of economic development in the post-crisis period: the revision of the modern economic theory, the increase of the analytical and practical components of training, and the introduction of disciplines related to behavioural finance.

Original languageEnglish
Title of host publicationThe Financial Crisis
Subtitle of host publicationImplications for Research and Teaching
PublisherSpringer International Publishing
Pages153-164
Number of pages12
ISBN (Electronic)9783319205885
ISBN (Print)9783319205878
DOIs
StatePublished - 1 Jan 2016

Bibliographical note

Publisher Copyright:
© Springer International Publishing Switzerland 2016.

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