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CEO job security and risk-taking

Cziraki, Peter and Xu, Moqi (2014) CEO job security and risk-taking. FMG disussion papers, DP729. The London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL: http://www.lse.ac.uk/fmg/home.aspx
Additional Information: © 2014 The Authors
Library of Congress subject classification: H Social Sciences > HG Finance
Journal of Economic Literature Classification System: G - Financial Economics > G3 - Corporate Finance and Governance > G34 - Mergers; Acquisitions; Restructuring; Corporate Governance
J - Labor and Demographic Economics > J4 - Particular Labor Markets > J41 - Contracts: Specific Human Capital, Matching Models, Efficiency Wage Models, and Internal Labor Markets
J - Labor and Demographic Economics > J6 - Mobility, Unemployment, and Vacancies > J63 - Turnover; Vacancies; Layoffs
Sets: Research centres and groups > Financial Markets Group (FMG)
Collections > LSE Financial Markets Group (FMG) Working Papers
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: DP729
Date Deposited: 28 Feb 2014 09:37
URL: http://eprints.lse.ac.uk/55909/

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