The impact of equity-based remuneration on corporate risk strategy in the Australian mining sector

Abstract

This study empirically examines whether CEO and director equity-based compensation influenced the risk strategy of listed Australian mining sector companies during 2004 to 2013, and whether risk strategy influenced shareholder value creation. The study had three broad objectives. The first was to identify the changes in remuneration structure for the CEO and directors that caused the increase in total compensation throughout this period. Following from the observed growth in equity-based compensation from part one, the second objective was to develop hypotheses to test the relationship between various forms of equity-based compensation and corporate risk strategy, and factors identified from agency and behavioural agency theories that influence firm risk taking and risk management decisions. The third objective was concerned with developing testing hypotheses to examine whether risk taking and risk management is connected to shareholder value creation. The contribution of the study include integrating theories concerned with management equity compensation, firm risk strategy and shareholder value, and to provide insights to enable enhanced understanding of current equity-based compensation practice and corporate risk strategy within the Australian mining sector. The study uses a pooled data set covering the ten year period 2004 to 2013. This comprises mining sector companies listed on the Australian Stock Exchange.