Does Executive Pay Shape Risk and Value of Corporates? A Systematic Survey of Global Evidence

Rajib Bhattacharya; Lopamudra Roy; Smita Chakraborty; Pramit SenGupta

Does Executive Pay Shape Risk and Value of Corporates? A Systematic Survey of Global Evidence

Author(s)	Rajib Bhattacharya, Lopamudra Roy, Smita Chakraborty, Pramit SenGupta
Country	India
Abstract	Executive-pay and reward systems occupy a pivotal position in corporate governance debates because of their ability to influence managerial behaviour, corporate risk-taking, and ultimately market valuation. While incentive-based compensation is designed to align managerial actions with shareholder interests, extensive research suggests that such incentives may also encourage excessive or misaligned risk-taking. Despite decades of theoretical and empirical inquiry, consensus remains elusive regarding when pay structures enhance firm value and when they undermine it by amplifying risk. This study undertakes a systematic review of the literature on pay and reward systems and their effects on corporate risk behaviour and market valuation. Using a PRISMA-compliant review methodology, the paper synthesizes evidence from economics, finance, management, and behavioural research. The review integrates agency theory, behavioural perspectives, stewardship theory, and governance frameworks to explain how different compensation instruments e.g. stock options, equity ownership, bonuses, and non-financial rewards, shape managerial risk preferences and investor perceptions. The findings indicate that compensation design has a conditional impact on both risk and valuation. High-powered, short-term, and convex incentives tend to increase financial, operational, and tail risk, particularly in weak governance environments. In contrast, compensation systems emphasizing long-term alignment, downside exposure, and strong monitoring mechanisms are more likely to support sustainable value creation. Market valuation effects emerge through investor expectations, risk premia adjustments, and signalling mechanisms related to governance quality. By synthesizing fragmented evidence and identifying unresolved methodological and contextual issues, this study contributes to a more nuanced understanding of executive compensation. It highlights the need for future research that moves beyond simplistic pay–performance debates toward dynamic, institution-sensitive analyses of risk and value creation.
Keywords	Executive Compensation; Corporate Risk-Taking; Market Valuation; Corporate Governance; Systematic Literature Review
Field	Business Administration
Published In	Volume 8, Issue 1, January-February 2026
Published On	2026-02-11

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Does Executive Pay Shape Risk and Value of Corporates? A Systematic Survey of Global Evidence

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