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CEO Turnover and Risk Taking under Long-Term Employment Contracts

81 Pages Posted: 22 Oct 2013 Last revised: 24 Oct 2017

Peter Cziraki

University of Toronto - Department of Economics; Tilburg Law and Economics Center (TILEC)

Moqi Groen-Xu

London School of Economics & Political Science (LSE)

Date Written: October 23, 2017

Abstract

We study the role of the contractual time horizon of CEOs for CEO turnover and risk taking. Using hand-collected data on 3,954 fixed-term CEO contracts, we show that remaining time under contract predicts CEO turnover. When contracts are close to expiration, turnover is more likely and is more sensitive to performance. We also show a positive within-CEO relation between remaining time under contract and risk. Our results are similar across short and long contracts and are driven neither by firm or CEO survival, nor technological cycles. They are consistent with risk-taking incentives provided by a long-term contract horizon.

Keywords: Risk taking, volatility, career concerns, CEO contracts, CEO turnover

JEL Classification: G34, J41, J63

Suggested Citation

Cziraki, Peter and Groen-Xu, Moqi, CEO Turnover and Risk Taking under Long-Term Employment Contracts (October 23, 2017). Available at SSRN: https://ssrn.com/abstract=2343541 or http://dx.doi.org/10.2139/ssrn.2343541

Peter Cziraki (Contact Author)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

University of Toronto - Department of Economics ( email )

150 St. George Street
Toronto, Ontario M5S3G7
Canada
+1 416 946 3298 (Phone)

HOME PAGE: http://www.economics.utoronto.ca/petercziraki

Moqi Groen-Xu

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

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