Long-Term CEO Contracts, Turnover, and Risk Taking

59 Pages Posted: 22 Oct 2013 Last revised: 17 Nov 2016

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: November 2016

Abstract

We introduce a novel measure of CEO career concerns: the distance to contract expiration. Using a sample of 3,954 CEO employment contracts, we show that the distance to contract expiration predicts CEO turnover and that CEO turnover is sensitive to performance only when contracts are close to expiration. We use within-CEO variation in contract-related turnover probability to isolate the effect of career concerns on risk taking. Protection against dismissal should encourage CEOs to engage in projects with less certain outcomes. We find that firms exhibit higher return volatility, higher idiosyncratic risk, and invest more when CEO turnover probability is low.

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

JEL Classification: G34, J41, J63

Suggested Citation

Cziraki, Peter and Groen-Xu, Moqi, Long-Term CEO Contracts, Turnover, and Risk Taking (November 2016). 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

Paper statistics

Downloads
620
Rank
32,881
Abstract Views
3,006