Do male and female CEOs behave differently when compensated with ESOs?

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Description of Research Project

Employee Stock Options (ESOs) were introduced to executives in the United States around the 1950s as a powerful tool to motivate and retain talented employees. Executives, such as CEOs and CFOs, play an important role in corporate decisions, including investing in potential projects and establishing financial policies for capital management. This project analyzes the influence of ESOs on the executives’ risk-taking behavior and, consequently, on firm risk-taking. As part of executive compensation packages, ESOs are designed to motivate managers to make decisions that maximize shareholder wealth rather than pursuing their own interests.
However, in practice, executives, regardless of gender, often run businesses in ways that protect either their current personal wealth or their future earning potential, rather than focusing purely on shareholder interests.

The relationship between ESO wealth and firm risk-taking is well documented in the literature and the relationship is motivated with the help of Agency theory where ESO wealth is measured by the sensitivity of executive wealth to changes in the firm's stock price. Agency theory (Jensen & Meckling, 1976) states that stock options stimulate executives to take more risk by aligning managerial incentives with shareholder interests. While losses affect both shareholders and bondholders equally, successful risks generate unlimited gains for shareholders but only fixed returns for bondholders. Stock options therefore motivate executives to pursue riskier strategies. In contrast, another research shows that ESOs induce less risk-taking (Sawers et al., 2011; Baixauli-Soler et al., 2015), which is consistent with the behavioral agency model (BAM) developed by Wiseman and Gomez-Mejia (1998). According to BAM theory, executives view the intrinsic value of their vested options as their current wealth. This current wealth is important because it affects how much risk they are willing to bear. When executives have accumulated more current wealth from vested options, they typically become less willing to take risks.

A substantial number of studies have examined the relationship between executive stock options allocated to executives in top management teams and firm risk-taking. However, little is known about how gender plays a role in this relationship, even though there are 43 female CEOs (less than 10%) and 124 female Chief Financial Officers (19%) among the 500 largest publicly traded U.S. companies in 2023. In Canada, women hold 42.2% of Chief Financial Officer roles and 19.4% of Chief Executive Officer roles, as reported in Women in Business 2025. As more women move into executive positions, understanding these gender differences helps boards create better compensation strategies.

Another stream of studies shows women take fewer risks than men in financial and investment choices (Barber & Odean, 2001; Charness & Gneezy, 2012, among others). Generally, top executives act differently based on gender in areas such as caution, aggressiveness, and leadership (Johnson & Powell, 1994). Martin et al. (2009) examine CEO appointments from 1992 to 2007 and find that companies with new female CEOs have less stock price volatility, which matches the finding that women prefer lower-risk strategies.

Given that women are less risk tolerant, this study examines how gender influences the relationship between ESO wealth and firm risk-taking behavior before, during, and after the Great Financial Crisis. Specifically, it investigates whether male and female executives differ in how they perceive the wealth at risk from ESOs and how this affects their risk-taking decisions.

References

Cited articles are available upon request

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Undergraduate Student Responsibilities

1. Conduct literature reviews.
2. Collect and analyze data.
3. Attend project meetings.
4. Attend area seminars and other necessary meetings.
5. Summarize project results; interpret data analysis results and draw inferences and conclusions.
6. Use research findings to write reports, papers, and reviews, and present results in journals and conferences.
7. Present research findings to faculty.

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Qualifications Required

1. Completion of courses in finance, economics, or data analysis (ADMS 3531, ADMS 3541, ADMS 4503, ADMS 4504, ADMS 4540 or equivalent preferred).
2. Familiarity with Excel or data visualization is desirable.
3. Ability to communicate findings clearly in visual and written formats.