The Masquerade Ball of the CEOs and the Mask of Excessive Risk

Sadettin Çitçi and Eren Inci

MPRA Paper from University Library of Munich, Germany

Abstract: We analyze the effects of CEOs' layoff risk on their risk choice while overseeing a firm. A CEO, whose managerial ability is unknown, is fired if her expected ability is below average. Her risk choice changes the informativeness of output and market's belief about her ability. She can decrease her layoff risk by taking excessive risk and trade off current compensation for layoff risk. The firm may voluntarily or involuntarily allow excessive risk taking even under optimal linear compensation contracts. Above-average CEOs always keep their jobs, but among below-average CEOs, a higher-ability one is more likely to be fired.

Keywords: career concern; CEO turnover; excessive risk taking; managerial conservatism; reputation (search for similar items in EconPapers)
JEL-codes: D82 G32 J33 L21 M12 (search for similar items in EconPapers)
Date: 2012
New Economics Papers: this item is included in nep-bec and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/35979/1/MPRA_paper_35979.pdf original version (application/pdf)

Related works:
Journal Article: The masquerade ball of the CEOs and the mask of excessive risk (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:35979

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter (winter@lmu.de).