The Prudent Risk-Taking Equilibrium
How Corporate Governance Channels Executive Risk Appetite in Pay-for-Performance Systemsetite in Pay-for-Performance Systems
DOI:
https://doi.org/10.14392/asaa.2026190108Keywords:
Executive Compensation, Pay-for-Performance, Executive Risk Appetite, Corporate Governance, Agency TheoryAbstract
Objective: We examine how the effectiveness of pay-for-performance (PFP) systems in aligning managerial behavior with shareholder value depends on the joint interaction between executive risk appetite and corporate governance quality. We propose a “Prudent Risk-Taking Equilibrium” to explain how these opposing forces interact and influence incentive-system outcomes.
Method: The sample comprises 1,106 firm-year observations from companies listed on the B3 (2018–2024), following the mandatory implementation of the Brazilian Corporate Governance Code. We employed multivariate panel-data regression models with firm and year fixed effects to test a three-way interaction among PFP structures, executive risk appetite, and governance compliance.
Results: The findings indicate that high executive risk appetite strengthens the effects of short-term PFP but diminishes the outcomes of long-term PFP, whereas corporate governance has the opposite effect. The significant three-way interaction shows that strong governance channels high risk appetite toward effective performance. Governance substitutes for short-term bonuses and complements long-term incentives, ensuring that aggressive risk-taking generates sustainable value.
Contributions: This research advances Agency Theory and the Behavioral Agency Model by demonstrating that governance mechanisms serve as channels that influence executive behavior. The empirical evidence confirms the effectiveness of the Brazilian Corporate Governance Code’s “comply-or-explain” approach, indicating that adherence to governance best practices yields tangible economic benefits by improving incentive effectiveness. In practical terms, the findings emphasize that compensation schemes should be tailored to the firm’s governance maturity and executive characteristics.
Downloads
References
Aguiar, A. B. D., & Pimentel, R. C. (2017). Remuneração de executivos e desempenho no mercado brasileiro: Relações contemporâneas e defasadas. Revista De Administração Contemporânea, 21(4), 545–568. https://doi.org/10.1590/1982-7849rac2017160228
Araújo, F. B., & Dos Anjos, L. C. M. (2025). Viés cognitivo e motivacional na tomada de decisão orçamentária: Evidências experimentais no setor público. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2024170311
Araujo, J. A. O., & Ribeiro, M. S. (2017). Trinta anos de pesquisa em remuneração executiva e retorno para o acionista. Revista De Educação E Pesquisa Em Contabilidade (REPeC), 11. https://doi.org/10.17524/repec.v11i0.1622
Armstrong, C. S., Glaeser, S., Huang, S., & Taylor, D. J. (2019). The economics of managerial taxes and corporate risk-taking. The Accounting Review, 94(1), 1–24. https://doi.org/10.2308/accr-52193
Azevedo, F. G. P., & Soares, R. O. (2025). The effect of CEO characteristics on executive compensation. Revista Contabilidade & Finanças, 36(99), e2189. https://doi.org/10.1590/1808-057x20252189.en
Baker, G. P., Jensen, M. C., & Murphy, K. J. (1988). Compensation and incentives: Practice vs. Theory. The Journal of Finance, 43(3), 593–616. https://doi.org/10.1111/j.1540-6261.1988.tb04593.x
Bebchuk, L. A., & Fried, J. M. (2005). Pay without performance: Overview of the issues. Journal of Applied Corporate Finance, 17(4), 8–23. https://doi.org/10.1111/j.1745-6622.2005.00056.x
Bedford, D. S. (2020). Conceptual and empirical issues in understanding management control combinations. Accounting, Organizations and Society, 86, 101187. https://doi.org/10.1016/j.aos.2020.101187
Beuren, I. M., da Silva, M. Z., & Mazzioni, S. (2014). Remuneração dos executivos versus desempenho das empresas. Revista De Administração FACES Journal, 13(2), 8–25.
Brandão, I. de F. (2019). Controle acionário e eficácia da adoção de práticas de governança corporativa: Uma análise da empresa brasileira. http://repositorio.ufc.br/handle/riufc/46008
Campoi, D. G. S., & Telles, S. V. (2025). Os efeitos da adoção da IFRS-16 no value relevance do EBITDA: Um estudo sobre empresas latino-americanas de capital aberto. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2025180111
Chatterjee, A., & Hambrick, D. C. (2007). It’s all about me: Narcissistic chief executive officers and their effects on company strategy and performance. Administrative Science Quarterly, 52(3), 351–386. https://doi.org/10.2189/asqu.52.3.351
Christensen, E., Wuebker, R., & Wustenhagen, R. (2009). Of acting principals and principal agents: Goal incongruence in the venture capitalist-entrepreneur relationship. International Journal of Entrepreneurship and Small Business, 7(3), 367. https://doi.org/10.1504/IJESB.2009.023025
Cohen, S., Kadach, I., Ormazabal, G., & Reichelstein, S. (2023). Executive compensation tied to ESG performance: International evidence. Journal of Accounting Research, 61(3), 805–853. https://doi.org/10.1111/1475-679X.12481
Coles, J. L., Daniel, N. D., & Naveen, L. (2006). Managerial incentives and risk-taking. Journal of Financial Economics, 79(2), 431–468. https://doi.org/10.1016/j.jfineco.2004.09.004
Core, J., & Guay, W. (1999). The use of equity grants to manage optimal equity incentive levels. Journal of Accounting and Economics, 28(2), 151–184. https://doi.org/10.1016/S0165-4101(99)00019-1
Correia, L. F., Amaral, H. F., & Louvet, P. (2011). Um índice de avaliação da qualidade da governança corporativa no brasil. Revista Contabilidade & Finanças, 22(55), 45–63. https://doi.org/10.1590/S1519-70772011000100004
Dai, H., Robinson, D., & Shen, Y. (2025). CEO-employee pay disparity, risk-taking incentives, and financial reporting choices. Journal of Financial Stability, 81, 101476. https://doi.org/10.1016/j.jfs.2025.101476
Damodaran, A. (2012). Investment valuation: Tools and techniques for determining the value of any asset. John Wiley & Sons.
Dechow, P., Ge, W., & Schrand, C. (2010). Understanding earnings quality: A review of the proxies, their determinants and their consequences. Journal of Accounting and Economics, 50(2–3), 344–401. https://doi.org/10.1016/j.jacceco.2010.09.001
Donaldson, L. (2006). The contingency theory of organizational design: Challenges and opportunities. Em R. M. Burton, D. D. Håkonsson, B. Eriksen, & C. C. Snow (Org.), Organization design (V. 6, p. 19–40). Springer US. https://doi.org/10.1007/0-387-34173-0_2
DuoRu, D., Guo, M. C., & Wang, Z. M. (2021). Executive compensation level, executive characteristics and quality of internal control. E3S Web of Conferences, 292, 3019. https://doi.org/10.1051/e3sconf/202129203019
Ellig, B. R. (2022). The complete guide to executive compensation (4 edition, fully revised and expanded). McGraw Hill Education.
Fávero, L. P., & Belfiore, P. (2024). Manual de análise de dados: Estatística e modelagem multivariada com excel®, SPSS® e stata®. Elsevier Brasil.
Ferris, S. P., Javakhadze, D., & Rajkovic, T. (2017). CEO social capital, risk-taking and corporate policies. Journal of Corporate Finance, 47, 46–71. https://doi.org/10.1016/j.jcorpfin.2017.09.003
Firmino, A. L., & Peixoto, F. M. (2023). Relação entre a diversidade de gênero nos conselhos de empresas brasileiras com a adesão ao índice carbono eficiente. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2023160203
Francisco, A., & Caio Galdi, F. (2022). A relação entre lucro bruto, lucro operacional e lucro líquido e os retornos futuros no brasil. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2022150106
Friedrich, M. P., Zonatto, V. C. D. S., Lavarda, C. E. F., & Lunardi, M. A. (2023). Efeitos do empoderamento psicológico no comprometimento organizacional, ambiguidade de papéis e desempenho gerencial em ambiente de baixa participação orçamentária. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2023160210
Gao, L., Sheikh, S., & Zhou, H. (2023). Executive compensation linked to corporate social responsibility and firm risk. International Journal of Managerial Finance, 19(2), 269–290. https://doi.org/10.1108/ijmf-10-2021-0511
Geiler, P., & Renneboog, L. (2016). Executive remuneration and the payout decision. Corporate Governance: An International Review, 24(1), 42–63. https://doi.org/10.1111/corg.12127
Góis, A. D., Lima, G. A. S. F. D., De Luca, M. M. M., & Gotti, G. (2024). Personalidade dark tetrad e gerenciamento de resultados: O efeito moderador da reputação corporativa. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2024170209
Gomez-Mejia, L., & Wiseman, R. M. (1997). Reframing execufive compensation: An assessment and outlook. Journal of Management, 23(3), 291–374. https://doi.org/10.1177/014920639702300304
González, J. S., & García-Meca, E. (2014). Does corporate governance influence earnings management in latin american markets? Journal of Business Ethics, 121(3), 419–440. https://doi.org/10.1007/s10551-013-1700-8
Hambrick, D. C. (2007). Upper echelons theory: An update. Academy of Management Review, 32(2), 334–343. https://doi.org/10.5465/amr.2007.24345254
Hambrick, D. C., & Mason, P. A. (1984). Upper echelons: The organization as a reflection of its top managers. Academy of Management Review, 9(2), 193–208. https://doi.org/10.2307/258434
Hart, T. A., David, P., Shao, F., Fox, C. J., & Westermann-Behaylo, M. (2015). An examination of the impact of executive compensation disparity on corporate social performance. Strategic Organization, 13(3), 200–223. https://doi.org/10.1177/1476127015585103
Iglesias, T. M. G., Guimarães, T. M., & Rogers, P. (2024). Mulheres no conselho de administração e os impactos na remuneração dos executivos e performance de grandes empresas brasileiras. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2024170108
Jensen, M. C., & Meckling, W. H. (1976). Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3(4), 305–360. https://doi.org/10.1016/0304-405x(76)90026-x
Jensen, M. C., & Murphy, K. J. (1990). Performance pay and top-management incentives. Journal of Political Economy, 98(2), 225–264. JSTOR. https://doi.org/10.1086/261677
Jin, Y. (2024). Management risk appetite, internal control and corporate financialization. Finance Research Letters, 63, 105393. https://doi.org/10.1016/j.frl.2024.105393
Krauter, E. (2013). Remuneração de executivos e desempenho financeiro: Um estudo com empresas brasileiras. Revista De Educação E Pesquisa Em Contabilidade (REPeC), 7(3). https://doi.org/10.17524/repec.v7i3.988
Larraza‐Kintana, M., Wiseman, R. M., Gomez‐Mejia, L. R., & Welbourne, T. M. (2007). Disentangling compensation and employment risks using the behavioral agency model. Strategic Management Journal, 28(10), 1001–1019. https://doi.org/10.1002/smj.624
Leal, P. H., & Anjos, L. C. M. D. (2023). Do corporate governance and managerial power induce abnormal CEO compensation contracts? An analysis of the brazilian market. Contaduría Y Administración, 69(4). https://doi.org/10.22201/fca.24488410e.2024.4973
Manso, G. (2011). Motivating innovation. The Journal of Finance, 66(5), 1823–1860. https://doi.org/10.1111/j.1540-6261.2011.01688.x
Marquezan, L. H. F., Velho, M. L. P., Souza, F. S. D., & Degenhart, L. (2023). Influência do conselho de administração e concentração acionária no desalinhamento entre remuneração executiva e desempenho. Contabilidade Gestão E Governança, 26(2), 181–212. https://doi.org/10.51341/cgg.v26i2.3063
Marquezan, L. H. F., Velho, M. L. P., & Zonatto, V. C. D. S. (2024). Influência do conselho de administração no desalinhamento entre remuneração executiva e desempenho organizacional. Revista Universo Contábil, 19(1). https://doi.org/10.4270/ruc.2023108
Morrison, E. A., Adu, D. A., & Guo, Y. (2024). Executive compensation, sustainable business practices and firm performance: A systematic literature review and future research agenda. Journal of Accounting Literature. https://doi.org/10.1108/jal-03-2023-0040
Mucci, D. M., Beck, F., & Frezatti, F. (2023). Funções de avaliação de desempenho e forecasting e o valor percebido com o orçamento. Advances in Scientific and Applied Accounting, 16(3). https://doi.org/10.14392/asaa.2023160302
Nascimento, M. R. D., Gonçalves, R. D. S., & Sousa, R. A. M. D. (2022). Valores éticos na organização e a qualidade da informação contábil. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2022150107
Olaniyi, C. O. (2023). Do the same executive compensation strategies and policies fit all the firms in the banking industry? New empirical insights from the CEO pay–firm performance causal nexus. Managerial and Decision Economics, 44(7), 4136–4160. https://doi.org/10.1002/mde.3934
Otley, D. (2016). The contingency theory of management accounting and control: 1980–2014. Management Accounting Research, 31, 45–62. https://doi.org/10.1016/j.mar.2016.02.001
Peng, S., Li, Z., Wei, X., & Liu, J. (2026). Executive risk preferences, supply chain finance depth, and corporate credit availability: An empirical analysis based on the mediating effect. Finance Research Letters, 90, 109213. https://doi.org/10.1016/j.frl.2025.109213
Pepper, A., & Gore, J. (2015). Behavioral agency theory: New foundations for theorizing about executive compensation. Journal of Management, 41(4), 1045–1068. https://doi.org/10.1177/0149206312461054
Pimenta, M. M. (2025). Do changes in accounting discretion affect earnings management? International evidence. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2024170302
Rouen, E. (2020). Rethinking measurement of pay disparity and its relation to firm performance. The Accounting Review, 95(1), 343–378. https://doi.org/10.2308/accr-52440
Rousseau, D., Kim, B. J., Splenda, R., Young, S., Lee, J., & Beck, D. (2023). Does chief executive compensation predict financial performance or inaccurate financial reporting in listed companies: A systematic review. Campbell Systematic Reviews, 19(4), e1370. https://doi.org/10.1002/cl2.1370
Rutherford, M. A., Buchholtz, A. K., & Brown, J. A. (2007). Examining the relationships between monitoring and incentives in corporate governance*. Journal of Management Studies, 44(3), 414–430. https://doi.org/10.1111/j.1467-6486.2007.00683.x
Santos, E. A. D., Lopes, I. F., Silva, S. L. H., Monteiro, J. J., & Lunkes, R. J. (2022). Sistemas de controle gerencial e eficácia de equipe: Os efeitos intervenientes do compartilhamento de informações e identificação organizacional. Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2022150101
Sheth, A. (2014). The carrot: Executive compensation, risk-taking and innovation. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2632958
Shleifer, A., & Vishny, R. W. (1997). A survey of corporate governance. The Journal of Finance, 52(2), 737–783. https://doi.org/10.1111/j.1540-6261.1997.tb04820.x
Silva, F. F. D., & De Moura, A. A. F. (2022). Mulheres executivas evitam problemas financeiros? Advances in Scientific and Applied Accounting. https://doi.org/10.14392/asaa.2022150301
Velte, P. (2024). Archival research on sustainability‐related executive compensation. A literature review of the status quo and future improvements. Corporate Social Responsibility and Environmental Management, 31(4), 3119–3147. https://doi.org/10.1002/csr.2741
Wiseman, R. M., & Gomez-Mejia, L. R. (1998). A behavioral agency model of managerial risk taking. Academy of Management Review, 23(1), 133. https://doi.org/10.2307/259103
Wooldridge, J. M. (2010). Econometric analysis of cross section and panel data (2o ed.). MIT Press.
Downloads
Published
How to Cite
Issue
Section
License
Copyright (c) 2026 Lucas Tronbjerg Villafuerte Bertolli Moreira, Andson Braga Aguiar
This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.
Copyright for articles published in the ASAA Journal is held by the author, with first publication rights to the journal. By virtue of appearing in this publicly accessible journal, the articles are free to use, with their own attributions, in educational and non-commercial applications. The ASAA Journal will allow the use of published works for non-commercial purposes, including the right to submit the work to publicly accessible databases. Published articles are the authors' full and exclusive responsibility. There are no submission/publishing charges or fees for processing articles (APC).
