Risk and CEO Turnover

50 Pages Posted: 7 Aug 2009  

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School

Zhonglan Dai

University of Texas at Dallas - School of Management

Xue Wang

Ohio State University - Fisher College of Business

Date Written: August 1, 2009

Abstract

This paper investigates how performance risk impacts a board’s ability to learn about a CEO’s unknown talent. We theorize that the information content of performance is increasing in idiosyncratic risk and decreasing in systematic risk. We provide robust empirical evidence that the likelihood of CEO turnover is increasing in idiosyncratic risk and decreasing in systematic risk, and that turnover-performance-sensitivity is also increasing in idiosyncratic risk and decreasing in systematic risk. We further investigate relations between the threat of termination and CEO compensation, documenting that for retained CEOs, both subsequent pay-performance-sensitivity and pay levels decrease in the probability of turnover.

Keywords: CEO turnover, Idiosyncratic risk, systematic risk

Suggested Citation

Bushman, Robert M. and Dai, Zhonglan and Wang, Xue, Risk and CEO Turnover (August 1, 2009). Available at SSRN: https://ssrn.com/abstract=1444062 or http://dx.doi.org/10.2139/ssrn.1444062

Robert M. Bushman

University of North Carolina Kenan-Flagler Business School ( email )

McColl Building
Chapel Hill, NC 27599-3490
United States
919-962-9809 (Phone)

HOME PAGE: http://public.kenan-flagler.unc.edu/faculty/bushmanr/

Zhonglan Dai (Contact Author)

University of Texas at Dallas - School of Management ( email )

2601 North Floyd Road
Richardson, TX 75083
United States

Xue Wang

Ohio State University - Fisher College of Business ( email )

2100 Neil Avenue
Columbus, OH 43210-1144
United States
614-688-1330 (Phone)
614-292-2118 (Fax)

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