CEO Turnover and the Reduction of Price Sensitivity

Posted: 15 Jan 2014 Last revised: 5 Jan 2015

See all articles by Michael J. Alderson

Michael J. Alderson

Saint Louis University - Richard A. Chaifetz School of Business

Naresh Bansal

Saint Louis University - Department of Finance

Brian L. Betker

Saint Louis University

Abstract

We examine managerial compensation and wealth sensitivities around CEO changes. The average new CEO is incentivized to increase the risk of the firm primarily because he holds significantly less stock than his predecessor, and in fact riskier policy choices are subsequently implemented. Similar results are obtained in a subsample of CEO changes that are due to retirements and deaths, which alleviates concerns about endogeneity. Our findings indicate that firms seem to be limited in their ability to mitigate the risk-averse behavior caused by large CEO shareholdings.

Keywords: CEO changes, managerial incentives, executive compensation, investment policy, financing policy

Suggested Citation

Alderson, Michael J. and Bansal, Naresh and Betker, Brian L., CEO Turnover and the Reduction of Price Sensitivity. Journal of Corporate Finance, Volume 25, April 2014, Pages 376–386, Available at SSRN: https://ssrn.com/abstract=2378619

Michael J. Alderson

Saint Louis University - Richard A. Chaifetz School of Business ( email )

3674 Lindell Blvd
St. Louis, MO 63108-3397
United States
314-977-8169 (Phone)
314-977-3897 (Fax)

Naresh Bansal (Contact Author)

Saint Louis University - Department of Finance ( email )

Richard A. Chaifetz School of Business
St. Louis, MO 63108
United States
314-977-7204 (Phone)

Brian L. Betker

Saint Louis University ( email )

St. Louis, MO 63108-3397
United States

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