Reining in excessive risk-taking by executives: the effect of accountability

Performance-contingent compensation by means of stock options may induce risk-taking in agents that is excessive from the point of view of the company or the shareholders. We test whether increasing shareholder control may be an effective checking mechanism to rein in such excessive risk-taking. We thus tell one group of experimental CEOs that they may have to justify their decision-making processes in front of their shareholders. This indeed reduces risk-taking and increases the performance of the companies they manage. Implications are discussed.

The relationship between banking market competition and risk-taking: Do size and capitalization matter?

This paper addresses the effects of bank competition on the risk-taking behaviors of banks in 10 Latin American countries between 2003 and 2008. We conduct our empirical approach in two steps. First, we estimate the Boone indicator, which is a measure of competition. We then regress this measure and other explanatory variables on the banking "stability inefficiency" derived simultaneously from the estimation of a stability stochastic frontier. Unlike previous findings, this paper concludes that competition affects risk-taking behavior in a non-linear way as both high and low competition levels enhance financial stability, while we find the opposite effect for average competition. In addition, bank size and capitalization are essential factors in explaining this relationship. On the one hand, the larger a bank is, the more it benefits from competition. On the other hand, a greater capital ratio is advantageous for banks that operate in collusive markets, while capitalization only enhances the stability of larger banks under high and average competition. These results are of extreme importance when considering bank regulations, especially in light of the recent turmoil in the global financial markets. (C) 2012 Elsevier B.V. All rights reserved.

What Makes a Family Firm Innovative? CEO Risk-Taking Propensity and the Organizational Context of Family Firms

Investigating the new product portfolio innovativeness of family firms connects two important topics that have recently received considerable attention in innovation and family firm research. First, new product portfolio innovativeness has been identified as a critical determinant of firm performance. Second, research on family firms has focused on the questions of if and why family firms are more or less innovative than other organizational forms. Research investigating the innovativeness of family firms has often applied a risk-oriented perspective by identifying socioemotional wealth (SEW) as the main reference that determines firm behavior. Thus, prior research has mainly focused on the organizational context to predict innovation-related family firm behavior and neglected the impact of preferences and the behavior of the chief executive officer (CEO), which have both been shown to affect firm outcomes. Hence, this study aims to extend the previous research by introducing the CEO's disposition to organizational context variables to explain the new product portfolio innovativeness of small and medium-sized family firms. Specifically, this study explores how the organizational context (i.e., ownership by top management team [TMT] family members and generation in charge of the family firm) of family firms interacts with CEO risk-taking propensity to affect new product portfolio innovativeness. Using a sample of 114 German CEOs of small and medium-sized family firms operating in manufacturing industries, the results show that CEO risk-taking propensity has a positive effect on new product portfolio innovativeness. Moreover, the analyses show that the organizational context of family firms impacts the relationship between CEO risk-taking propensity and new product portfolio innovativeness. Specifically, the relationship between CEO risk-taking propensity and new product portfolio innovativeness is weaker if levels of ownership by TMT family members are high (high SEW). Additionally, the effect of CEO risk-taking propensity on new product portfolio innovativeness is stronger in family firms at earlier generational stages (high SEW). This result suggests that if SEW is a strong reference, family firm-specific characteristics can affect individual dispositions and, in turn, the behaviors of executives. Therefore, this study helps extend the knowledge on the determinants of new product portfolio innovativeness of family firms by considering an individual CEO preference and the organizational context variables of family firms simultaneously.

Tonic activity level in the right prefrontal cortex predicts individuals' risk taking

Human risk taking is characterized by a large amount of individual heterogeneity. In this study, we applied resting-state electroencephalography, which captures stable individual differences in neural activity, before subjects performed a risk-taking task. Using a source-localization technique, we found that the baseline cortical activity in the right prefrontal cortex predicts individual risk-taking behavior. Individuals with higher baseline cortical activity in this brain area display more risk aversion than do other individuals. This finding demonstrates that neural characteristics that are stable over time can predict a highly complex behavior such as risk-taking behavior and furthermore suggests that hypoactivity in the right prefrontal cortex might serve as a dispositional indicator of lower regulatory abilities, which is expressed in greater risk-taking behavior.

Disruption of right prefrontal cortex by low-frequency repetitive transcranial magnetic stimulation induces risk-taking behavior

Decisions require careful weighing of the risks and benefits associated with a choice. Some people need to be offered large rewards to balance even minimal risks, whereas others take great risks in the hope for an only minimal benefit. We show here that risk-taking is a modifiable behavior that depends on right hemisphere prefrontal activity. We used low-frequency, repetitive transcranial magnetic stimulation to transiently disrupt left or right dorsolateral prefrontal cortex (DLPFC) function before applying a well known gambling paradigm that provides a measure of decision-making under risk. Individuals displayed significantly riskier decision-making after disruption of the right, but not the left, DLPFC. Our findings suggest that the right DLPFC plays a crucial role in the suppression of superficially seductive options. This confirms the asymmetric role of the prefrontal cortex in decision-making and reveals that this fundamental human capacity can be manipulated in normal subjects through cortical stimulation. The ability to modify risk-taking behavior may be translated into therapeutic interventions for disorders such as drug abuse or pathological gambling.

Diminishing risk-taking behavior by modulating activity in the prefrontal cortex: a direct current stimulation study.

Studies have shown increased risk taking in healthy individuals after low-frequency repetitive transcranial magnetic stimulation, known to transiently suppress cortical excitability, over the right dorsolateral prefrontal cortex (DLPFC). It appears, therefore, plausible that differential modulation of DLPFC activity, increasing the right while decreasing the left, might lead to decreased risk taking, which could hold clinical relevance as excessively risky decision making is observed in clinical populations leading to deleterious consequences. The goal of the present study was to investigate whether risk-taking behaviors could be decreased using concurrent anodal transcranial direct current stimulation (tDCS) of the right DLPFC, which allows upregulation of brain activity, with cathodal tDCS of the left DLPCF, which downregulates activity. Thirty-six healthy volunteers performed the risk task while they received either anodal over the right with cathodal over the left DLPFC, anodal over the left with cathodal over the right DLPFC, or sham stimulation. We hypothesized that right anodal/left cathodal would decrease risk-taking behavior compared with left anodal/right cathodal or sham stimulation. As predicted, during right anodal/left cathodal stimulation over the DLPFC, participants chose more often the safe prospect compared with the other groups. Moreover, these participants appeared to be insensitive to the reward associated with the prospects. These findings support the notion that the interhemispheric balance of activity across the DLPFCs is critical in decision-making behaviors. Most importantly, the observed suppression of risky behaviors suggests that populations with boundless risk-taking behaviors leading to negative real-life consequences, such as individuals with addiction, might benefit from such neuromodulation-based approaches.

Association of part-time employment and sexual risk-taking behaviors among middle school students

Background. Previous research shows inconsistent results as to the association between part-time employment and sexual behavior among younger teens. Studies of older teens cannot be generalized to younger teens because of the wide differences in types of work performed, nature of work environments, and work intensity. Objective. Examine the relationship between part-time employment and sexual behavior in a cross-sectional sample of public middle school students in Houston, Texas. Methods . The study presents a secondary analysis of data from the It’s Your Game…Keep it Real baseline data collection (11/2004–1/2005). It’s Your Game… is an intervention program for middle school students designed to prevent Sexually Transmitted Infections. Statistical analysis. Univariate and multivariate logistic regression analyses were conducted to examine the association between part-time employment and vaginal intercourse: (a) ever had sex; and (b) current sexual activity. Results. Overall, 13.2% of students worked for pay; male students were 1.5 times as likely as females to be working. Of all the students, 11.0% had had sexual intercourse; students who worked were 3 times more likely to be sexually experienced than those who did not. Among students who were sexually experienced, 67.0% were currently sexually active. After adjusting for the other covariates, Hispanic students were almost 3.6 times more likely to report current sexual activity compared to students in other racial/ethnic groups. In univariate analysis, students who worked 1-5 hrs/week were more likely to be sexually experienced than those not currently employed, and the likelihood increased with number of hours worked. There is a similar pattern in the multivariate model, but the odds ratios are too close for the evidence to be more than suggestive. Of sexually experienced students, students working 1-5 hrs/week were 2.7 times more likely to report current sexual intercourse than those not working; those working >5 hrs/week were 4.7 times more likely. The multivariate model showed a similar increase in likelihood, and adjustment for covariates increased these associations: students who worked 1-5 hrs/week were 3.6 times more likely to report current sexual intercourse, and students who worked >5 hrs/week were 4.5 times more likely, than students not currently employed.^

Ethnic comparisons of adolescent sexual risk -taking and preventive behavior

For adolescents, unprotected sexual intercourse is the primary cause of sexually transmitted disease (STD), including Human Immunodeficiency Virus (HIV) infection (virus which causes Acquired Immunodeficiency Syndrome (AIDS)), and pregnancy. Although many studies on adolescent sexual behavior have addressed racial/ethnic differences, few studies have examined the relation between race/ethnicity while controlling for other sociocultural and psychosocial variables. The purpose of this study is to examine the relationship between racial/ethnic categories and selected sociocultural and psychosocial variables, with reported adolescent sexual risk-taking and preventive behavior.^ A self-administered questionnaire was used to collect information from 3132 students in a Texas school district (Section 3.5.2). The instrument contained approximately 100 questions on demographic characteristics, sexual behavior, and psychosocial determinants of sexual behavior. Based on the findings of this study, the following major conclusions are made: (1) There are differences in reported sexual risk-taking and preventive behavior among Black, Hispanic and White adolescents in this study. The stratified analysis by gender further suggests significant gender differences in reported sexual behavior among the three racial/ethnic groups. (2) Gender, living arrangement, academic grades, and language spoken at home modified the association between reported sexual risk-taking and preventive behavior and race/ethnicity in this study. This suggests that these sociocultural variables should be considered in future research and practice involving multicultural populations. (3) There are differences in selected psychosocial determinants among the three racial/ethnic groups and between males and females. These differences were consistent with the reported sexual risk-taking and preventive behaviors among race/ethnicity and gender for adolescents in this study. The findings support the consideration of psychosocial determinants in research and interventions addressing adolescent sexual behavior among different racial/ethnic groups.^ Based on the results of this study, two recommendations for practice are made. First, health professionals developing interventions for adolescents from different cultural backgrounds and gender need to be familiar with the specific sociocultural and psychosocial factors which will reduce risky sexual behavior, and promote protective behavior. Second, the need for immediate, realistic, and continuous HIV/STD and pregnancy prevention programs for children and adolescents should be considered. ^

The acceptable level of risk-taking for traditional rock climbers

Taking risk with all the consequences inevitably belongs to climbing. Each climber confronts his or her skills with the route he or she has chosen for an ascent. If the route is well protected, the rate of risk the climber takes is lower. If the route is less protected, the level of risk that the climber is exposed to proportionally increases. The aim of the research is to determine the level of risk-taking in traditional climbing on sandstone. We focus on how the level of risk affects climber’s performance and what reserve a climber needs to be able to cope with the higher risk and reduce it? The problem is solved by methods of quantitative research and the sample comprises more than 300 respondents. The results of the research prove a significant difference of climbers’ performance in dependence on rate of risk. Climbers usually reach lower performance according to the grading scale when climbing traditional routes with a higher level of risk.

Monetary policy and risk taking. Bruegel Working Paper 2010/00, February 2010

We assess, through VAR evidence, the effects of monetary policy on banks’ risk exposure and find the presence of a risk-taking channel. A model combining fragile banks prone to risk mis-incentives and credit constrained firms, whose collateral fluctuations generate a balance sheet channel, is used to rationalize the evidence. A monetary expansion increases bank leverage. With two consequences: on the one side this exacerbates risk exposure; on the other, the risk spiral depresses output, therefore dampening the conventional amplification effect of the financial accelerator. Keywords: monetary policy, bank behavior, leverage, financial accelerator.

Young driver risk-taking research: the state of the art. Interim report.

National Highway Traffic Safety Administration, Office of Driver and Pedestrian Safety, Washington, D.C.