<p>By placing corporate governance at the core of analyzing the effect of monetary policy on investments, this paper argues that the firm’s capital investment response to monetary policy is shaped by how CEO compensation incentivizes risk-taking. We posit that, due to the risks arising from monetary policy decisions, CEO compensation structures that encourage risk-taking lead to a stronger investment response to monetary shocks. Our analysis, based on a comprehensive dataset of 75,352 firm-level observations from 2,302 U.S. firms spanning 1993 to 2018, supports this conjecture: a high CEO compensation sensitivity to stock volatility (Vega) strengthens the firm’s investment response to monetary shocks. An increase in Vega from its 25th to 75th percentile in our sample increases (or decreases) the rate of capital investments in response to expansionary (or contractionary) monetary shocks by roughly a third. This effect is accentuated by strong financial flexibility and low economic uncertainty. We also demonstrate that high Vegas partially counterbalance the risk-averse investment response to monetary shocks driven by high Deltas.</p>