The Masquerade Ball of the CEOs and the Mask of Excessive Risk
Sadettin Haluk Citci
affiliation not provided to SSRN
February 10, 2012
Sabanci University Working Paper No. 2012/0002
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, M12working papers series
Date posted: February 11, 2012
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo3 in 0.547 seconds