When executives own stock in their own firms, they face the problem of being able to balance their risk exposure.

Question

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Executives who own stock in their firms have a vested interest in the success of the company, but they also face the challenge of balancing their personal financial risk with the risks associated with running the business. They may be tempted to pursue strategies that increase the value of their stock holdings while ignoring the broader risks to the company, which can lead to conflicts of interest. Therefore, they need to carefully manage their risk exposure while making decisions that are in the best interest of the company as a whole.

When Executives Own Stock in Their Own Firms, They Face