Abstract

http://ssrn.com/abstract=2081685
 
 

References (28)



 
 

Citations (2)



 


 



Agency, Firm Growth and Managerial Turnover


Ronald W. Anderson


London School of Economics & Political Science (LSE) - Department of Accounting and Finance; Centre for Economic Policy Research (CEPR)

Maria Cecilia Bustamante


Department of Finance, University of Maryland

Stéphane Guibaud


SciencesPo - Department of Economics

Mihail Zervos


University of London - Department of Mathematics

January 25, 2016


Abstract:     
We study managerial incentive provision under moral hazard in an environment where growth opportunities arrive stochastically over time and taking them requires a change of management. The firm faces a trade-off between the benefit of always having a manager able to seize new opportunities and the cost of incentive provision. The optimal dynamic contract may grant partial job protection whereby the firm insulates its managers from the risk of growth-induced dismissal and foregoes attractive opportunities when they come after periods of good performance. Moreover, the prospect of growth-induced turnover limits the firm’s ability to rely on deferred pay — resulting in more front-loaded compensation. The empirical evidence for the U.S. is broadly supportive of the model’s predictions. Industries with better growth prospects experience higher CEO turnover and use more front-loaded compensation.

Number of Pages in PDF File: 95

Keywords: dynamic contracting, managerial turnover, growth, moral hazard

JEL Classification: G30, D82, D86, D92


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Date posted: June 11, 2012 ; Last revised: February 3, 2016

Suggested Citation

Anderson, Ronald W. and Bustamante, Maria Cecilia and Guibaud, Stéphane and Zervos, Mihail, Agency, Firm Growth and Managerial Turnover (January 25, 2016). Available at SSRN: http://ssrn.com/abstract=2081685 or http://dx.doi.org/10.2139/ssrn.2081685

Contact Information

Ronald W. Anderson (Contact Author)
London School of Economics & Political Science (LSE) - Department of Accounting and Finance ( email )
Houghton Street
London WC2A 2AE
United Kingdom
+44 20 7955 6204 (Phone)
+44 20 7955 7420 (Fax)
HOME PAGE: http://personal.lse.ac.uk/ANDERSOR/
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Maria Cecilia Bustamante
Department of Finance, University of Maryland ( email )
Robert H. Smith School of Business
Van Munching Hall
College Park, MD 20742
United States
HOME PAGE: http://https://sites.google.com/a/rhsmith.umd.edu/mcbustam/?pli=1
Stephane Guibaud
SciencesPo - Department of Economics ( email )
28 Rue des Saints-Pères
Paris, 75007
France
Mihail Zervos
University of London - Department of Mathematics ( email )
Strand
Strand
London, WC2R 2LS
United Kingdom
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