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Ceo Job Security And Risk-Taking

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  • Peter Cziraki
  • Moqi Xu

Abstract

We use the length of employment contracts to estimate CEO turnover probability and its effects on risk-taking. Protection against dismissal should encourage CEOs to pursue riskier projects. Indeed, we show that firms with lower CEO turnover probability exhibit higher return volatility, especially idiosyncratic risk. An increase in turnover probability of one standard deviation is associated with a volatility decline of 17 basis points. This reduction in risk is driven largely by a decrease in investment and is not associated with changes in compensation incentives or leverage.

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  • Peter Cziraki & Moqi Xu, 2014. "Ceo Job Security And Risk-Taking," FMG Discussion Papers dp729, Financial Markets Group.
    • Handle: RePEc:fmg:fmgdps:dp729
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    File URL: http://www.lse.ac.uk/fmg/workingPapers/discussionPapers/fmgdps/DP729-final.pdf
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    2. Brochet, Francois & Limbach, Peter & Schmid, Markus M. & Scholz-Daneshgari, Meik, 2019. "CEO tenure and firm value," CFR Working Papers 16-11, University of Cologne, Centre for Financial Research (CFR), revised 2019.
    3. Murad Antia & Christos Pantzalis & Jung Chul Park, 2021. "Does CEO myopia impede growth opportunities?," Review of Quantitative Finance and Accounting, Springer, vol. 56(4), pages 1503-1535, May.

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