CEO job security and risk-taking

Peter Cziraki and Moqi Xu

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We use the length of employment contracts to estimate CEO turnover probability and its effects on risk-taking. Protection against dismissal should encourage CEOs to pursue riskier projects. Indeed, we show that firms with lower CEO turnover probability exhibit higher return volatility, especially idiosyncratic risk. An increase in turnover probability of one standard deviation is associated with a volatility decline of 17 basis points. This reduction in risk is driven largely by a decrease in investment and is not associated with changes in compensation incentives or leverage.

Keywords: risk-taking; gambling for resurrection; CEO contracts; CEO turnover (search for similar items in EconPapers)
JEL-codes: G34 J41 J63 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2014-02-01
New Economics Papers: this item is included in nep-cfn
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:55909

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