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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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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:
Additional Information: © 2014 The Authors
Subjects: H Social Sciences > HG Finance
JEL classification: 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
Date Deposited: 28 Feb 2014 09:37
Last Modified: 11 Dec 2017 15:10

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