Dear Reviewers,

We sincerely thank you for your detailed and constructive feedback. We have carefully addressed each comment and substantially revised the manuscript in line with the concerns raised. These revisions have resulted in significant improvements in the theoretical positioning, methodological transparency, and interpretive depth of our study. Below, we respond point-by-point to each comment. For each issue raised, we summarize our revisions and indicate where in the manuscript the relevant changes have been made (with page and line references, where applicable). We trust that these revisions adequately address your concerns and improve the quality and coherence of the manuscript.

Reviewer #1: (1.) Lack of Clear Research Gap and Theoretical Contribution. (1.1.) While the study discusses the role of regulatory focus in managerial decision-making, it does not sufficiently articulate its novelty relative to prior literature. The connection between CEO compensation and risk preferences has been widely studied within agency theory and behavioral finance, yet the paper does not explicitly delineate how its findings extend or challenge existing paradigms.

Reviewer #2: (1.) I believe that the theoretical foundation could better explain how and why different compensation structures impact risk-taking, perhaps with a clearer link between Regulatory Focus Theory and Behavioral Agency Theory.

Response:

We thank both reviewers for highlighting the need to better articulate the contribution of our study. We have revised the manuscript to emphasize the novelty of integrating RFT – a psychological framework – into the corporate governance literature, particularly in connection with compensation design. While previous studies (e.g., Sanders & Hambrick, 2007; Beatty & Zajac, 1994) examined the link between executive pay and risk-taking, few have explored how dispositional motivation moderates this relationship.

We now make clear that our study addresses this gap by demonstrating how RFT can explain behavioral heterogeneity in CEO responses to identical incentive structures. This approach advances existing theories (AT, BAM, UET) by accounting for individual-level variation in motivational orientation, a dimension often overlooked in governance research (pp. 5-6, lines 110–136).

Reviewer #1: (1.2.) The introduction lacks a critical synthesis of past studies and fails to clearly differentiate this study from prior empirical investigations.

Response:

We thank the reviewer for this insightful observation. In response, we have revised the Introduction section to provide a more explicit and critical synthesis of prior literature and to highlight how our study extends existing research in meaningful ways.

Specifically, we added a new integrative paragraph (see p. 20, lines 462–468) that outlines the empirical limitations of previous studies focusing on CEO risk-taking. We emphasize that prior research has largely relied on U.S.-centric data and focused either on structural variables (e.g., incentive alignment, power asymmetries) or dispositional traits in isolation, without systematically integrating motivational orientation (as conceptualized by Regulatory Focus Theory) with corporate governance mechanisms. Furthermore, we note that even when RFT is included in earlier studies (e.g., Gamache et al., 2015; Lanaj et al., 2012), it is typically treated as a secondary moderator rather than a core explanatory variable.

By embedding RFT within a broader theoretical framework that includes BAM, PT, and UET, and by testing this integration empirically in a hybrid governance environment (Poland), our study provides a cross-contextual, psychologically informed explanation of CEO strategic risk-taking. This approach goes beyond prior research by demonstrating how the same formal incentives may elicit divergent behaviors depending on stable motivational orientation. Thus, we now clearly position our contribution as a theoretically novel and empirically grounded advancement in the behavioral governance literature.

We hope these revisions directly address the reviewer’s concern and clarify how our study builds upon and differentiates itself from earlier empirical investigations.

Reviewer #1: (1.3.) Although regulatory focus theory (RFT) is well-established in psychology and management research, the article does not integrate it with competing governance perspectives, such as the Upper Echelons Theory (UET) or Prospect Theory, which also address CEO decision-making biases. For instance, Sewpersadh (2019) examines different types of CEO power (structural, expert, prestige) and how these influence strategic decision-making. This provides a critical lens for evaluating how CEO compensation aligns with different power structures. Sewpersadh, N.S. (2019), "An examination of CEO power with board vigilance as a catalyst for firm growth in South Africa", Measuring Business Excellence, Vol. 23 No. 4, pp. 377-395. https://doi.org/10.1108/MBE-10-2018-0083

Response:

We appreciate the reviewer’s suggestion to more clearly situate Regulatory Focus Theory (RFT) within the broader landscape of executive decision-making frameworks. In response, we have revised the theoretical section to integrate RFT with both Upper Echelons Theory (UET) and Prospect Theory (PT). Specifically, we now clarify that RFT captures stable, chronic motivational orientations (promotion vs. prevention focus), whereas UET emphasizes observable executive traits and PT focuses on situational framing of decisions. By aligning RFT with these established frameworks, we offer a complementary psychological lens that enriches our understanding of CEO-level variability in risk preferences under identical structural conditions (pp. 3–4, lines 63–88).

Additionally, we explicitly contrast our dispositional approach with power-based governance models such as Sewpersadh (2019), emphasizing that our contribution shifts the analytical focus from positional authority to internal motivational states. We believe this integration addresses the reviewer’s concern and strengthens the theoretical coherence of the study.

Reviewer #1: (1.4.) The study does not explore counterarguments or limitations of applying RFT in the CEO compensation context, leaving theoretical gaps unaddressed.

Response:

In the revised Discussion, we explicitly address potential limitations of applying RFT to CEO behavior. We note that while RFT offers a robust dispositional lens, it does not account for all situational constraints imposed by organizational governance or external monitoring. For instance, the expected moderating effects of compensation on promotion-focused CEOs were not supported, suggesting that financial incentives may be less influential in shaping risk behavior for this group. We now interpret this as a possible boundary condition for the applicability of RFT in high-status executive roles, where agency discretion may be tempered by power dynamics or pre-existing strategic mandates (see pp. 49–50, lines 1044–1053 in Discussion). We have also signaled the need for future research to test whether RFT effects hold under varying institutional logics and leadership contexts.

Reviewer #1: (2.) Methodological Concerns. The empirical design, while employing longitudinal panel data, has several shortcomings that undermine the robustness and generalizability of the findings. (2.1) Sampling and external validity. (2.1.1.) The study relies on a relatively small sample of 89 firms, predominantly from the Warsaw Stock Exchange (WSE), limiting its applicability to broader corporate governance contexts.

Response:

In the revised manuscript, we explicitly acknowledge this limitation (see p. 52, lines 1019–1020, section: Limitations and future research directions), clarifying that the final sample of 82 firms (resulting from the exclusion of 7 companies listed on non-Polish stock exchanges – see reviewer comment below) reflects a data-driven sampling logic (see also p. 21, lines 497–506, and p. 22, lines 509–511). This logic prioritizes the availability of complete and high-quality data (CEO letters, compensation, and strategic indicators) over full population coverage. Such a sampling approach is common in management and behavioral research, where disclosure practices vary significantly across jurisdictions.

In Poland, there is no strict obligation to disclose many types of corporate information beyond core financial statements for publicly listed companies. However, recent legal and market developments indicate a clear trend towards greater transparency. Limited access to data that is widely available in other jurisdictions, such as the United States, poses a serious challenge for researchers in many countries, including those in Central and Eastern Europe. This affects the size of usable, high-quality samples and represents both a limitation and a structural research challenge for scholars working in these contexts.

To mitigate potential sample selection bias arising from non-random availability of CEO letters and compensation data – which may be correlated with unobserved determinants of strategic risk – we applied the two-step Heckman correction procedure (Heckman, 1979). This procedure, described in detail later in our response, allowed us to generate the inverse Mills ratio (IMR), which was included in both the fixed effects (FE) and random effects (RE) models (see Method section).

Although the primary empirical focus is on Poland, the findings can be analytically extended to other continental European governance systems that share similar institutional characteristics and a hybrid corporate model (p. 56, lines 1194–1203, section: Limitations and future research directions). The study contributes to the growing body of research on executive behavior outside the United States, particularly within the underrepresented context of Central and Eastern Europe.

Reviewer #1: (2.1.2.) The inclusion of a few firms from other European exchanges (e.g., Germany, Spain, Portugal) is inconsistent and lacks a clear justification.

Response:

In the revised version of the manuscript (see p. 21, lines 497–506, and p. 22, lines 509–511), we decided to exclude the 7 companies listed outside the Polish stock exchange. Their initial inclusion was motivated by the availability of comparable longitudinal data on CEO communication and compensation, given the significant data gaps observed among companies listed on the Warsaw Stock Exchange (WSE), particularly regarding remuneration, bonuses, and CEO letters to shareholders. However, upon further reflection, we fully agree with the reviewers that such a mixed sample lacks consistency and that the justification for its inclusion was insufficient.

Reviewer #1: (2.1.3.) There is no discussion of industry-specific risk factors that might influence CEO decision-making differently across sectors.

Reviewer #2: (5.) Fixed salaries appear to reduce risk-taking in promotion-focused CEOs. I wonder if the authors could discuss a little bit governance or industry constraints that could explain this result.

Response:

In the revised version of the manuscript, we have included a sector control variable and indicated the distribution of companies in the sample across 11 sectors (as detailed in the sample description on p. 22, lines 512–521 and in Supplementary Table S1). Unfortunately, this variable was automatically excluded from the main fixed effects (FE) models due to its time-invariant nature, which is a known limitation of FE estimation. However, it was included in the robustness check using a random effects (RE) model, where it did not display a statistically significant relationship with the dependent variable – managerial strategic risk.

This does not imply that sectoral context is irrelevant in our research. We fully acknowledge that limitations of the sample prevented a proper examination of sectoral conditioning, and our model does not fully capture sector-specific risk norms. We recognize this as a limitation and emphasize the need for more in-depth treatment of this variable in future studies. This limitation is illustrated by contrasting highly regulated sectors (e.g., banking) with less regulated ones (e.g., technology). We also highlight that sectoral conventions are likely to shape how CEOs perceive strategic boldness – either as innovation or recklessness – depending on the industry context. This insight provides a foundation for future research involving sector-specific sampling or interaction terms (see pp. 53–54, lines 1134–1148 in the section Limitations and future research directions).

Reviewer #1: (2.1.4.) The omission of small and medium-sized enterprises (SMEs) creates a selection bias, as SMEs often face different governance and risk dynamics compared to publicly traded firms.

Response:

We acknowledge this limitation and have explicitly addressed it in the revised manuscript. In the updated section, we now clarify that the sample includes only publicly listed firms and discuss how this introduces selection bias, as SMEs may exhibit distinct governance mechanisms and risk dynamics (Berger & Udell, 2006). We also highlight that CEO ownership is typically higher in SMEs, which may amplify or dampen the effects of regulatory focus. We encourage future studies to examine whether our findings replicate in SME contexts, where incentive structures are often less formalized and leadership effects more personalized (see p. 53, lines 1125–1133 of Limitations and future research directions).

Reviewer #1: (2.2) Measurement Limitations. CEO regulatory focus is inferred through content analysis of shareholder letters using the Polish LIWC dictionary. However, the study does not critically engage with potential biases in this methodology. (2.2.1.) The assumption that shareholder letters authentically reflect CEO decision-making is problematic, as such letters may be influenced by public relations teams or investor relations advisors.

Reviewer #2: (2.) The use of shareholder letters to assess CEO regulatory focus is interesting, but I believe that some potential biases could be addressed. I wonder to what extent do these letters genuinely reflect CEO traits rather than corporate messaging strategies?

Response:

We appreciate the reviewers’ concerns regarding the potential limitations of using shareholder letters to infer CEOs’ regulatory focus. In response, we have added a more extensive description of the content analysis methodology in the section detailing the measurement of our key psychological variables, including a justification for the choice of this method (p. 23, lines 538–545), and we explicitly address the possible influence of investor relations or public relations teams on the texts. We acknowledge that these publicly disclosed documents may not fully reflect unfiltered cognitive states. However, we clarify that our analysis aims to capture the externally communicated motivational emphasis of CEOs, rather than introspective content (see also the section Limitations and future research directions, p. 54, lines 1149–1162).

To strengthen the validity of our approach, we highlight that the Polish LIWC-based dictionary of regulatory orientation used in this study has been empirically validated in multiple studies, demonstrating content, discriminant, and correlational validity (Marszałek et al., 2023). This makes it a psychometrically robust tool for detecting promotion and prevention focus in Polish-language texts.

We also reinforce our methodological rationale by drawing on prior research (e.g., Gamache et al., 2015; Zheng et al., 2020), which successfully employed managerial discourse to infer dispositional traits. Moreover, we note that CEOs typically participate in drafting or thoroughly editing these letters and bear legal responsibility for their content, which supports the assumption that the language used reflects their strategic perspectives and motivational priorities.

In addition, we cite literature showing that linguistic style in corporate communication reflects stable psychological dispositions (Tausczik & Pennebaker, 2010), and that shareholder letters provide a discreet and consistent medium for long-term psychometric assessment (e.g., Craig & Amernic, 2011; Yekini et al., 2019

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