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The Executive Turnover Risk Premium

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  • FLORIAN S. PETERS
  • ALEXANDER F. WAGNER

Abstract

type="main"> We establish that CEOs of companies experiencing volatile industry conditions are more likely to be dismissed. At the same time, accounting for various other factors, industry risk is unlikely to be associated with CEO compensation other than through dismissal risk. Using this identification strategy, we document that CEO turnover risk is significantly positively associated with compensation. This finding is important because job-risk-compensating wage differentials arise naturally in competitive labor markets. By contrast, the evidence rejects an entrenchment model according to which powerful CEOs have lower job risk and at the same time secure higher compensation.

Suggested Citation

  • Florian S. Peters & Alexander F. Wagner, 2014. "The Executive Turnover Risk Premium," Journal of Finance, American Finance Association, vol. 69(4), pages 1529-1563, August.
  • Handle: RePEc:bla:jfinan:v:69:y:2014:i:4:p:1529-1563
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    More about this item

    JEL classification:

    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • M52 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Compensation and Compensation Methods and Their Effects

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