Impact of monetary rewards on subsequent firm risk-taking of retiring CEOs who remain active professionally versus CEOs who become inactive professionally

This research examines the influence of rewards and professional roles after retirement on retiring CEOs' risk-taking behavior displayed during final years via subsequent firm risk. It was hypothesized that retiring CEOs considered both risk attached to each type of reward and career concerns in making decisions involving risk.;A sample of 200 CEOs engaged in mandatory retirement during 1995-2004 was separated into two groups: those who remained active as their own board members after retirement (active group) and those who became inactive (inactive group). Hierarchical regression analysis was applied to test the hypotheses postulating the relationships between rewards and risk-taking of retiring CEOs of both groups. The results revealed that a positive relationship between stock options and risk-taking was found on both groups of retiring CEOs. The influence of stock options on risk-taking was stronger for those who remained active than those who became inactive. Equity stakes were also found to have a positive relationship with risk-taking of retiring CEOs who remained active; however, this relationship was weaker than that of stock options. There was a negative relationship found between retirement benefits and risk-taking, but only on those who remained active.;These results provide evidence contradictory to the implications of research in horizon problems that long-tenured CEOs who are about to retire tend to be risk averse to protect their wealth. The findings of this study on varied risk-taking behavior of retiring CEOs who remained active suggest that retiring CEOs who intend to remain active are likely to seek risk when they are enticed with upside potential of outcome variance associated with their rewards, and tend to avoid risk-taking when concerned with downside potential.