Abstract

http://ssrn.com/abstract=1773070
 
 

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Are Ex-Ante CEO Severance Pay Contracts Consistent with Efficient Contracting?


Brian D. Cadman


University of Utah - David Eccles School of Business

John L. Campbell


University of Georgia - J.M. Tull School of Accounting

Sandy Klasa


University of Arizona - Department of Finance

November 15, 2011


Abstract:     
Efficient contracting predicts that ex-ante severance pay contracts are offered to CEOs as protection against downside risk and to encourage investment in risky positive net-present-value projects. Consistent with this prediction, we find that ex-ante contracted severance pay is positively associated with proxies for a CEO’s risk of dismissal and costs the CEO would incur from dismissal. Additionally, we show that the contracted severance payment amount positively impacts CEO risk-taking and the extent to which a CEO invests in projects that have a positive net-present-value. Overall, our findings imply that ex-ante severance pay contracts are consistent with efficient contracting.

Number of Pages in PDF File: 50

Keywords: CEO Turnover, CEO Compensation, Efficient Contracting

JEL Classification: G31, G32, G34

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Date posted: February 28, 2011 ; Last revised: August 14, 2014

Suggested Citation

Cadman, Brian D. and Campbell, John L. and Klasa, Sandy, Are Ex-Ante CEO Severance Pay Contracts Consistent with Efficient Contracting? (November 15, 2011). Available at SSRN: http://ssrn.com/abstract=1773070 or http://dx.doi.org/10.2139/ssrn.1773070

Contact Information

Brian D. Cadman
University of Utah - David Eccles School of Business ( email )
1645 Campus Center Drive
Salt Lake City, UT 84112
United States
801-585-9517 (Phone)
HOME PAGE: http://www.business.utah.edu/bio/briancadman
John L. Campbell
University of Georgia - J.M. Tull School of Accounting ( email )
Athens, GA 30602
United States
706.542.3595 (Phone)
706.542.3630 (Fax)
Sandy Klasa (Contact Author)
University of Arizona - Department of Finance ( email )
McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-8761 (Phone)
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