Abstract

http://ssrn.com/abstract=2181167
 
 

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How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes?


P. Raghavendra Rau


University of Cambridge

Jin Xu


Virginia Tech - Pamplin College of Business

November 16, 2012

Journal of Accounting Research 51(3), June 2013, pages 631-671

Abstract:     
We analyze a sample of over 3,600 ex ante explicit severance pay agreements in place at 808 firms and show that firms set ex ante explicit severance pay agreements as one component in managing the optimal level of equity incentives. Younger executives are more likely to receive explicit contracts and better terms. Firms with high distress risk, high takeover probability and high return volatility are significantly more likely to enter into new or revised severance contracts. Finally, ex post payouts to managers are largely determined by the ex ante contract terms.

Number of Pages in PDF File: 54

Keywords: Managerial compensation, Severance pay, Optimal contracting

JEL Classification: G32, G34

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Date posted: November 27, 2012 ; Last revised: April 21, 2013

Suggested Citation

Rau, P. Raghavendra and Xu, Jin, How Do Ex-Ante Severance Pay Contracts Fit into Optimal Executive Incentive Schemes? (November 16, 2012). Journal of Accounting Research 51(3), June 2013, pages 631-671. Available at SSRN: http://ssrn.com/abstract=2181167

Contact Information

P. Raghavendra Rau (Contact Author)
University of Cambridge ( email )
Cambridge Judge Business School
Trumpington Street
Cambridge, Cambridgeshire CB21AG
United Kingdom
3103626793 (Phone)
HOME PAGE: http://www.raghurau.com/
Jin Xu
Virginia Tech - Pamplin College of Business ( email )
Department of Finance
880 West Campus Dr
Blacksburg, VA 24061
United States
HOME PAGE: http://www.finance.pamplin.vt.edu/faculty/jx/index.html
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