The Behavioral Agency Model and Decision-Making under Ambiguity.

This study extends the Behavioral Agency Model (BAM) by examining how ambiguity influences the relation between CEO equity pay and firm risky investment. While most BAM research draws from early PT's models on decision under risk, behavioral research has evolved over time to incorporate ambiguity, accounting for information-related uncertainty. By integrating this body of research, this study contends that ambiguity increases the propensity of "wealthy" CEOs to undertake strategic investment with uncertain outcomes. Therefore, not only the sign of future prospects (i.e., gain vs. losses), but even the certainty / uncertainty of those prospects influences executive decision making. This study also contends that the moderating effect of ambiguity is even magnified under situational and personal contingencies, such as board non-duality structures and CEO age. To examine such arguments, this study focuses on one specific form of ambiguity, i.e., that induced by macro-economic forces. The empirical analyses on a sample of US public companies provide consistent evidence in support of our theory: CEOs holding larger accumulated values of exercisable or un-exercisable stock options invest more under ambiguity; non duality magnifies the ambiguity- effect as predicted; contrary to predictions, CEO age generates contrasting (moderating) influences on executive pay and firm investment under ambiguity. Overall, by examining how information- related uncertainty, i.e., ambiguity, influences the relation between CEO equity pay and firm investment, this study renew the theoretical PT's platform underlying BAM, moving the model toward a fully-designed, comprehensive behavioral perspective on executive compensation and decision-making on investment. [ABSTRACT FROM AUTHOR]