CEO turnover and the reduction of price sensitivity

Michael J. Alderson, Naresh Bansal and Brian L. Betker

Journal of Corporate Finance, 2014, vol. 25, issue C, 376-386

Abstract: We examine managerial compensation and wealth sensitivities around CEO changes. The average new CEO is incentivized to increase the risk of the firm primarily because he holds significantly less stock than his predecessor, and in fact riskier policy choices are subsequently implemented. Similar results are obtained in a subsample of CEO changes that are due to retirements and deaths, which alleviates concerns about endogeneity. Our findings indicate that firms seem to be limited in their ability to mitigate the risk-averse behavior caused by large CEO shareholdings.

Keywords: CEO changes; Managerial incentives; Executive compensation; Investment policy; Financing policy (search for similar items in EconPapers)
JEL-codes: G31 G32 M12 (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:25:y:2014:i:c:p:376-386

DOI: 10.1016/j.jcorpfin.2014.01.007

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