CEO Turnover and Volatility under Long-Term Employment Contracts

Journal of Financial and Quantitative Analysis, 2020, 55(6): 1757-1791

92 Pages Posted: 22 Oct 2013 Last revised: 19 Oct 2020

See all articles by Peter Cziraki

Peter Cziraki

Texas A&M University - Department of Finance; Tilburg Law and Economics Center (TILEC)

Moqi Groen-Xu

Queen Mary University of London

Date Written: February 26, 2019

Abstract

We study the role of the contractual time horizon of CEOs for CEO turnover and corporate policies. 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 firm 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 incentives to take long-term projects with interim volatility.

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 Volatility under Long-Term Employment Contracts (February 26, 2019). Journal of Financial and Quantitative Analysis, 2020, 55(6): 1757-1791, Available at SSRN: https://ssrn.com/abstract=2343541 or http://dx.doi.org/10.2139/ssrn.2343541

Peter Cziraki (Contact Author)

Texas A&M University - Department of Finance ( email )

430 Wehner
College Station, TX 77843-4218
United States
979 845 1136 (Phone)

Tilburg Law and Economics Center (TILEC) ( email )

Warandelaan 2
Tilburg, 5000 LE
Netherlands

Moqi Groen-Xu

Queen Mary University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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