@article{8a717a88f1d048b9830ed4d0e6a67efc,
title = "Playing it safe? Managerial preferences, risk, and agency conflicts",
abstract = "This article examines managers{\textquoteright} incentive to play it safe. We find that, after managers are insulated by the adoption of an antitakeover law, they take value-destroying actions that reduce their firms{\textquoteright} stock volatility and risk of distress. To illustrate one such action, we show that managers undertake diversifying acquisitions that target firms likely to reduce risk, have negative announcement returns, and are concentrated among firms with managers who gain the most from reducing risk. Our findings suggest that instruments typically used to motivate managers, such as greater financial leverage and larger ownership stakes, exacerbate risk-related agency challenges.",
keywords = "Acquisitions, Agency conflicts, Managerial preferences, Risk",
author = "Gormley, {Todd A.} and Matsa, {David A.}",
note = "Funding Information: For helpful comments, we thank Jie Cai, David Cicero, Jonathan Cohn, Peter Cziraki, Alex Edmans, Eliezer M. Fich, Jonathan Karpoff, E. Han Kim, Stefan Lewellen, Doron Levit, Angie Low, Gregor Matvos, Ernst Maug, Kasper Nielsen, Joshua Rauh, Michael Roberts, Wei Wang, Moqi Xu, and seminar participants at Case Western Reserve University, Drexel University, Harvard University, McGill University, Penn State Harrisburg, University of Colorado, University of Melbourne, University of Miami, University of New South Wales, University of Pennsylvania, University of Sydney, University of Technology Sydney, University of Virginia, Florida State University SunTrust Conference, Hong Kong University of Science and Technology Finance Symposium on Corporate Finance, Jackson Hole Finance Group, Interdisciplinary Center Herzliya Annual Conference on Financial Economics, Midwest Finance Association Annual Meeting, and National Bureau of Economic Research Summer Institute. We are grateful to Moshe Cohen, Jonathan Karpoff, James S. Linck, Dimitris Papanikolaou, and David Yermack for providing data used in this study. Grant Clayton, Matthew Denes, and Christine Dobridge provided research assistance. Todd A. Gormley thanks the Rodney L. White Center for Financial Research and the Brandywine Global Investment Management Research Fellowship for financial support. Publisher Copyright: {\textcopyright} 2016 Elsevier B.V. Copyright: Copyright 2016 Elsevier B.V., All rights reserved.",
year = "2016",
month = dec,
day = "1",
doi = "10.1016/j.jfineco.2016.08.002",
language = "English (US)",
volume = "122",
pages = "431--455",
journal = "Journal of Financial Economics",
issn = "0304-405X",
publisher = "Elsevier B.V.",
number = "3",
}