Finance

Business

Stock (firearms)

Mood

Corporate governance

Agency (philosophy)

Behavioral economics

Epistemology

Executive compensation

Engineering

Philosophy

Psychology

Economics

Principal–agent problem

Microeconomics

Affect (linguistics)

Incentive

Stock options

Communication

Social psychology

Mechanical engineering

Journal of Management

We advance behavioral agency theory by exploring the influence of mood or “affect” on the behavioral consequences of stock option incentives. Drawing on insights from psychology and behavioral decision theory, we describe how affect influences agent risk behavior. We argue that positive affect amplifies both the extent to which executives reduce strategic risk taking in response to risk bearing and engage in strategic risk taking in response to incentives for further enrichment. Building again on the psychology literature, we describe how CEO accountability attenuates the influence of affect on CEO risk behavior in response to stock option incentives. We test our expectations in a longitudinal data set of CEO stock option incentives, affect, and strategic risk taking by U.S. firms.

The Role of Affect in Shaping the Behavioral Consequences of CEO Option Incentives