CEO Tenure and Risk-Taking

Abstract:     
This paper conducts the first systematic analysis of the effect of CEO tenure on risk-taking. We document an overall positive relation between tenure and risk-taking. Our results suggest that the dominant channel through which CEO tenure affects risk-taking may not be power, human capital investment, or experiences. Instead, the results are consistent with the hypothesis that the declining career concerns associated with longer tenure increase the risk-taking incentives of a CEO. Consistent with recent theoretical work, we also show that the effect of career concerns on risk-taking depends on the information asymmetry about CEO ability.

Number of Pages in PDF File: 46

Keywords: Corporate governance, CEO tenure, risk taking, pay-performance sensitivity, pay-volatility sensitivity, career concern, managerial power, entrenchment, experience, human capital investment

JEL Classification: G30, G34

working papers series