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The Masquerade Ball of the CEOs and the Mask of Excessive RiskSadettin Haluk Citciaffiliation not provided to SSRN Eren InciSabanci University February 10, 2012 Sabanci University Working Paper No. 2012/0002 Abstract: We analyze the effects of CEOs' layoff risk on their risk choice while overseeing a firm. A CEO, whose managerial ability is unknown, is fired if her expected ability is below average. Her risk choice changes the informativeness of output and market's belief about her ability. She can decrease her layoff risk by taking excessive risk and trade off current compensation for layoff risk. The firm may voluntarily or involuntarily allow excessive risk taking even under optimal linear compensation contracts. Above-average CEOs always keep their jobs, but among below-average CEOs, a higher-ability one is more likely to be fired.
Number of Pages in PDF File: 55 Keywords: career concern, CEO turnover, excessive risk taking, managerial conservatism, reputation JEL Classification: D82, G32, J33, L21, M12 working papers seriesDate posted: February 11, 2012Suggested CitationContact Information
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