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The executive turnover risk premium


Peters, Florian S; Wagner, Alexander F (2014). The executive turnover risk premium. Journal of Finance, 69(4):1529-1563.

Abstract

CEO compensation has increased substantially over the past 15 years, but so has forced turnover. Motivated by this observation, we investigate whether part of the development of CEO pay can be explained by a premium which compensates CEOs for increased job risk. We find that for the CEOs of the largest US corporations, a one percentage point increase in turnover risk is, on average, associated with about 4% more in terms of total compensation. This relation is much stronger in the cross section than it is over time, and it does not appear to be driven by endogeneity. Our findings are consistent with a model of effcient contracting, but are harder to reconcile with a model of entrenched CEOs.

Abstract

CEO compensation has increased substantially over the past 15 years, but so has forced turnover. Motivated by this observation, we investigate whether part of the development of CEO pay can be explained by a premium which compensates CEOs for increased job risk. We find that for the CEOs of the largest US corporations, a one percentage point increase in turnover risk is, on average, associated with about 4% more in terms of total compensation. This relation is much stronger in the cross section than it is over time, and it does not appear to be driven by endogeneity. Our findings are consistent with a model of effcient contracting, but are harder to reconcile with a model of entrenched CEOs.

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16 citations in Web of Science®
14 citations in Scopus®
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Additional indexing

Item Type:Journal Article, refereed, original work
Communities & Collections:03 Faculty of Economics > Department of Banking and Finance
Dewey Decimal Classification:330 Economics
JEL Classification:D8, G34, M52
Language:English
Date:August 2014
Deposited On:20 Jul 2012 08:34
Last Modified:28 Aug 2017 15:12
Publisher:Wiley-Blackwell
ISSN:0022-1082
Publisher DOI:https://doi.org/10.1111/jofi.12166
Other Identification Number:merlin-id:4656

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