Past, Present, and Future: A Look at How CEO Temporal Focus Affects Strategic Risk Taking

This study advances the behavioral agency model (BAM) by demonstrating that agents’ temporal focus can shape the influence of their option incentives on strategic risk taking. Specifically, we argue that the negative influence of current option wealth on strategic risk taking can be weakened by CEOs’ present focus, but strengthened by their past and future focus. In contrast, the positive effect of prospective option wealth on strategic risk taking can be strengthened by CEOs’ present focus, but weakened by their past and future focus. Using a sample of 1,669 CEOs from 2003 to 2013, we find empirical support for most of our arguments. Our findings extend the BAM and the model of person-pay interaction by highlighting the role of CEOs’ temporal focus in shaping the influence of executive option pay on strategic risk taking.