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The executive turnover risk premium

Florian S. Peters and Alexander Wagner
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Florian S. Peters: University of Zurich and University of California at Berkeley

No 08-11, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: CEO compensation has increased substantially over the past 15 years, but so has forced turnover. Motivated by this observation, we investigate whether part of the development of CEO pay can be explained by a premium which compensates CEOs for increased job risk. We ¯nd that for the CEOs of the largest US corporations, a one percentage point increase in turnover risk is, on average, associated with about 4% more in terms of total compensation. This relation is much stronger in the cross section than it is over time, and it does not appear to be driven by endogeneity. Our ¯ndings are consistent with a model of e±cient contracting, but are harder to reconcile with a model of entrenched CEOs.

Keywords: Executive compensation; entrenchment; turnover; corporate governance (search for similar items in EconPapers)
JEL-codes: D8 G34 M52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec and nep-lab
Date: 2008-10
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http://ssrn.com/abstract=1140713 (application/pdf)

Related works:
Journal Article: The Executive Turnover Risk Premium (2014) Downloads
Working Paper: The Executive Turnover Risk Premium (2012) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp0811

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