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The Executive Turnover Risk Premium

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Listed:
  • Florian S. Peters

    (Duisenberg school of finance, University of Amsterdam)

  • Alexander F. Wagner

    (Swiss Finance Institute, University of Zuerich, CEPR, Harvard University)

Abstract

We establish that CEOs of companies experiencing volatile industry conditions are more likely tobe dismissed. At the same time, industry risk is, controlling for various other factors, unlikelyto be directly associated with CEO compensation other than through dismissal risk. Using thisidentification strategy, we document that CEO turnover risk is significantly positively associatedwith compensation. This finding is important because job-risk compensating wage differentials arisenaturally in competitive labor markets. By contrast, the evidence rejects a simple entrenchmentmodel according to which powerful CEOs have lower job risk and at the same time secure highercompensation.

Suggested Citation

  • Florian S. Peters & Alexander F. Wagner, 2012. "The Executive Turnover Risk Premium," Tinbergen Institute Discussion Papers 12-021/2/DSF30, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20120021
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    More about this item

    Keywords

    CEO turnover; CEO Compensation; Corporate Governance;
    All these keywords.

    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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