Center for Advanced Management




Prof. Gerard Sanders (Brigham Young University)


  • Date: 09.11.2007
  • Time: 14:00 - 16:00
  • Location: Ludwigstr. 28, Rear Building, Room 328


"Option-loaded CEOs swing for fences, but strike out more often"


In their latest study, Wm. Gerard Sanders of Brigham Young University and Donald Hambrick, Professor of Management at Penn State’s Smeal college of Business unpack the concept of managerial risk taking, distinguishing among three of its major elements: the size of an outlay, the variance of potential outcomes, and the likelihood of extreme loss. They then apply their framework in hypothesizing the effects of CEO stock options on strategic behavior and company performance. They find that CEO stock options engender high levels of investment outlays and bring about extreme corporate performance (big gains and big losses), suggesting that stock options prompt CEOs to make high-variance bets, not simply larger bets. Finally, they find that optionloaded CEOs deliver more big losses than big gains.