Good for CEOs , Bad for Stock Market? Evidence from CEO Risk‐taking Incentives and Stock Price Delay

This study investigates the impact of CEO risk‐taking incentives, measured by Vega, on stock price efficiency, proxied by stock price delays. We show that CEO risk‐taking incentives negatively affect stock price efficiency. Further analyses show that stock liquidity, accounting quality, and stock crash risk are potential channels through which CEO risk‐taking incentives influence stock price delays. To address endogeneity issues, we conduct a difference‐in‐differences test and use instrumental variable estimation. Finally, we reveal the moderating role of CEO inside debt in the relationship between CEO risk‐taking incentives and stock price efficiency. This study enriches the literature on equity‐based executive compensation and offers insights into its impact on capital markets. The findings align with the managerial power perspective, indicating that equity‐based compensation can serve CEOs’ interests. The findings also have practical implications for boards of directors and policymakers about the use of equity‐based incentives.