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Risk and CEO turnover

  • Bushman, Robert
  • Dai, Zhonglan
  • Wang, Xue
Registered author(s):

    This paper investigates how performance risk impacts a board's ability to learn about the unknown talent of a chief executive officer (CEO). We theorize that the information content of performance is increasing in idiosyncratic risk and decreasing in systematic risk. We provide robust empirical evidence that the likelihood of CEO turnover is increasing in idiosyncratic risk and decreasing in systematic risk and that turnover-performance-sensitivity is also increasing in idiosyncratic risk and decreasing in systematic risk. We further investigate relations between the threat of termination and CEO compensation, showing that for retained CEOs, both subsequent pay-performance-sensitivity and pay levels decrease in the probability of turnover.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0304-405X(10)00044-9
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    Article provided by Elsevier in its journal Journal of Financial Economics.

    Volume (Year): 96 (2010)
    Issue (Month): 3 (June)
    Pages: 381-398

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    Handle: RePEc:eee:jfinec:v:96:y:2010:i:3:p:381-398
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/505576

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