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Determinants of CEO severance contracts and their components and the effects of severance contracts on executive turnover

  • Van Dalsem, Shane
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    This paper identifies the determinants of executive severance contracts and their components and the effect of severance contracts on the likelihood of forced and unforced turnover. The results provide evidence that severance contracts are used as a form of insurance for incoming CEOs. The results also provide evidence that a fixed cash component and a time-dependent maturity policy in the severance contract increases the likelihood of forced turnover.

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    File URL: http://www.sciencedirect.com/science/article/B6V7T-4Y7P4MV-1/2/3e411d0d16b0bcf2bc90c4efc220de9d
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    Article provided by Elsevier in its journal Journal of Economics and Business.

    Volume (Year): 62 (2010)
    Issue (Month): 4 (July)
    Pages: 257-272

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    Handle: RePEc:eee:jebusi:v:62:y::i:4:p:257-272
    Contact details of provider: Web page: http://www.elsevier.com/locate/jeconbus

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    1. Robert Gibbons & Kevin J. Murphy, 1991. "Optimal Incentive Contracts in the Presence of Career Concerns: Theory and Evidence," NBER Working Papers 3792, National Bureau of Economic Research, Inc.
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    5. Yermack, David, 2006. "Golden Handshakes: Separation Pay for Retired and Dismissed CEOs," SIFR Research Report Series 41, Institute for Financial Research.
    6. Bryan, Stephen & Hwang, LeeSeok & Lilien, Steven, 2000. "CEO Stock-Based Compensation: An Empirical Analysis of Incentive-Intensity, Relative Mix, and Economic Determinants," The Journal of Business, University of Chicago Press, vol. 73(4), pages 661-93, October.
    7. Jackson, Scott B. & Lopez, Thomas J. & Reitenga, Austin L., 2008. "Accounting fundamentals and CEO bonus compensation," Journal of Accounting and Public Policy, Elsevier, vol. 27(5), pages 374-393.
    8. Sam Allgood, 2003. "The Match between CEO and Firm," The Journal of Business, University of Chicago Press, vol. 76(2), pages 317-342, April.
    9. Smith, Clifford Jr. & Watts, Ross L., 1992. "The investment opportunity set and corporate financing, dividend, and compensation policies," Journal of Financial Economics, Elsevier, vol. 32(3), pages 263-292, December.
    10. Mark R. Huson, 2001. "Internal Monitoring Mechanisms and CEO Turnover: A Long-Term Perspective," Journal of Finance, American Finance Association, vol. 56(6), pages 2265-2297, December.
    11. Elazar Berkovitch & Ronen Israel & Yossef Spiegel, 2000. "Managerial Compensation and Capital Structure," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 9(4), pages 549-584, December.
    12. McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-21, May.
    13. Jovanovic, Boyan, 1979. "Firm-specific Capital and Turnover," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1246-60, December.
    14. Iqbal, Zahid & French, Dan W., 2007. "Executive share ownership, trading behavior, and corporate control: Evidence from top management turnover during financial distress," Journal of Economics and Business, Elsevier, vol. 59(4), pages 298-312.
    15. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    16. Andres Almazan & Javier Suarez, 2003. "Entrenchment and Severance Pay in Optimal Governance Structures," Journal of Finance, American Finance Association, vol. 58(2), pages 519-548, 04.
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