• Corporate Governance;
  • CEO Stock-Based Compensation;
  • Home-Country Risk;
  • Equity Offering;
  • American Depository Receipts


Manuscript Type: Empirical

Research Question/Issue: We ask two research questions: (1) How do CEO stock ownership and options influence the amount of equity capital that a foreign firm raises in US capital markets? (2) How does the foreign firm's home-country risk moderate these relationships?

Research Findings/Insights: To test our hypotheses, we use a sample of firms from 40 countries that raised equity capital via ADR offerings between 1994 and 2005. Using a full-information maximum likelihood approach to estimate a model that accounts for sample selection associated with non-capital raising ADRs and non-listed ADRs, as well as hot and cold equity markets, we found that CEO stock and option ownership lead to a higher level of equity capital raised. Interestingly, the level of home-country risk of the issuing firm weakens the relationship between the CEO stock ownership and the amount of equity capital raised, but strengthens the relationship between CEO stock options and ADR equity capital raised.

Theoretical/Academic Implications: We develop a framework that draws on behavioral decision making and agency theory to suggest that executive risk taking varies across countries and different forms of monitoring (stock ownership versus options) and that agents may exhibit risk-seeking as well as risk-averse behaviors. We also examined the potential corporate governance costs associated with principal-principal conflict as it relates to CEO stock-based compensation and the implications for raising equity capital. Because stock ownership and stock options have different risk profiles, and foreign firms operate in countries with different home-country risk, we theorize how home-country risk will moderate the relationship between CEO stock ownership or options with the amount of equity capital raised by a foreign firm in US stock markets through the issuance of American Depository Receipts (ADRs).

Practitioner/Policy Implications: Our results show that US investors pay attention to the types of stock-based executive compensation used by firms that raise capital in the US. In particular, CEOs of firms from higher risk countries need to consider US investors' perceptions of their stock-based compensation because it may hamper the firm's effectiveness in raising capital in the US.