Industry tournament incentives and differential risk taking

This study examines how industry tournament incentives affect chief executive officers' (CEOs') attitudes toward differential risk‐taking. The results show that these incentives cause a greater increase in taking systematic rather than idiosyncratic risks. Furthermore, this differential risk‐taking manifests in a competitive business environment. The findings hold robust to the instrumental variable approach and variation in industry pay gap following the adoption of FAS123R. Overall, the results suggest that the industry pay gap effectively increases CEOs' systematic risk‐taking, especially in competitive industries.