Richard Townsend

University of California, San Diego
Rady School of Management
9500 Gilman Drive
La Jolla, CA 92093

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NBER Working Papers and Publications

November 2017Do Household Wealth Shocks Affect Productivity? Evidence from Innovative Workers During the Great Recession
with Shai Bernstein, Timothy McQuade: w24011
We investigate how the deterioration of household balance sheets affects worker productivity, and whether such effects mitigate or amplify economic downturns. To do so, we compare the output of innovative workers who experienced different declines in housing wealth, but who were employed at the same firm and lived in the same area at the onset of the 2008 crisis. We find that, following a negative wealth shock, innovative workers become less productive, and generate lower economic value for their firms. Consistent with a debt-related channel, the effects are more pronounced among those with little home equity before the crisis and those with fewer outside labor market opportunities.
January 2017How do Quasi-Random Option Grants Affect CEO Risk-Taking?
with Kelly Shue: w23091
We examine how an increase in stock option grants affects CEO risk-taking. The overall net effect of option grants is theoretically ambiguous for risk-averse CEOs. To overcome the endogeneity of option grants, we exploit institutional features of multi-year compensation plans, which generate two distinct types of variation in the timing of when large increases in new at-the-money options are granted. We find that, given average grant levels during our sample period, a 10 percent increase in new options granted leads to a 2.8–4.2 percent increase in equity volatility. This increase in risk is driven largely by increased leverage.

Published: KELLY SHUE & RICHARD R. TOWNSEND, 2017. "How Do Quasi-Random Option Grants Affect CEO Risk-Taking?," The Journal of Finance, vol 72(6), pages 2551-2588.

July 2016Does Career Risk Deter Potential Entrepreneurs?
with Joshua D. Gottlieb, Ting Xu: w22446
Do potential entrepreneurs remain in wage employment because of concerns that they will face worse job opportunities should their entrepreneurial ventures fail? Using a Canadian reform that extended job-protected leave to one year for women giving birth after a cutoff date, we study whether the option to return to a previous job increases entrepreneurship. A regression discontinuity design reveals that longer job-protected leave increases entrepreneurship by 1.9 percentage points. These entrepreneurs start incorporated businesses that hire employees—in industries where experimentation before entry has low costs and high benefits. The effects are concentrated among those with more human and financial capital.
February 2016Growth through Rigidity: An Explanation for the Rise in CEO Pay
with Kelly Shue: w21975
The dramatic rise in CEO compensation during the 1990s and early 2000s is a longstanding puzzle. In this paper, we show that much of the rise can be explained by a tendency of firms to grant the same number of options each year. Number-rigidity implies that the grant-date value of option awards will grow with firm equity returns, which were very high on average during the tech boom. Further, other forms of CEO compensation did not adjust to offset the dramatic growth in the value of option pay. Number-rigidity in options can also explain the increased dispersion in pay, the difference in growth between the US and other countries, and the increased correlation between pay and firm-specific equity returns. We present evidence that number-rigidity arose from a lack of sophistication about opt...

Published: Kelly Shue & Richard R. Townsend, 2017. "Growth through rigidity: An explanation for the rise in CEO pay," Journal of Financial Economics, vol 123(1), pages 1-21.

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