Prior literature provides mixed evidence on managerial risk aversion. Using a sample of
1737 large US firms from 1996 to 2005, we find a negative association between the insider
ratio and firm risk. Upon further analysis, we show that firms with a greater insider ratio are
also likely to have more conservative CEO compensation and investment policies. Analysis
of CEO compensation policies indicates that firms with a greater insider ratio offer lower
equity based compensation, lower vega and lower total compensation to their CEOs. Also …