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Risk and CEO TurnoverRobert M. BushmanUniversity of North Carolina at Chapel Hill - Kenan-Flagler Business School Zhonglan DaiUniversity of Texas at Dallas - School of Management Xue WangOhio State University - Fisher College of Business August 1, 2009 Abstract: This paper investigates how performance risk impacts a board’s ability to learn about a CEO’s unknown talent. We theorize that the information content of performance is increasing in idiosyncratic risk and decreasing in systematic risk. We provide robust empirical evidence that the likelihood of CEO turnover is increasing in idiosyncratic risk and decreasing in systematic risk, and that turnover-performance-sensitivity is also increasing in idiosyncratic risk and decreasing in systematic risk. We further investigate relations between the threat of termination and CEO compensation, documenting that for retained CEOs, both subsequent pay-performance-sensitivity and pay levels decrease in the probability of turnover.
Number of Pages in PDF File: 50 Keywords: CEO turnover, Idiosyncratic risk, systematic risk working papers seriesDate posted: August 7, 2009Suggested CitationContact Information
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