Executive stock options, gender diversity in the top management team, and firm risk taking

Drawing on agency theory and the behavioral agency model (BAM), this study aims to clarify the influence of executive stock options (ESOs) granted to the top management team (TMT) on firm risk taking. In addition, we also consider the effect of gender diversity in the TMT on the relationship between ESOs and risk taking. After controlling for potential endogeneity issues, the results show that there is an inverted U-shaped relationship between the wealth created by ESOs for members of the TMT and risk taking, and that those TMTs in which there is female representation exhibit more conservative behavior compared to that of non-gender diverse TMTs. The evidence confirms that firm risk taking is a combination of the agency and BAM perspectives and their emphasis on prospective and current wealth, respectively.