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 Gomez-Mejia

Research output: Contribution to journalArticle

16 Scopus citations

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.

Original languageEnglish (US)
Pages (from-to)483-498
Number of pages16
JournalHuman Resource Management
Volume54
Issue number3
DOIs
StatePublished - May 1 2015
Externally publishedYes

Keywords

  • Behavioral agency
  • Perceived firm efficacy
  • R&D
  • Risk

ASJC Scopus subject areas

  • Applied Psychology
  • Strategy and Management
  • Organizational Behavior and Human Resource Management
  • Management of Technology and Innovation

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