Risk and CEO turnover

Bushman, Robert M.; Dai, Zhonglan; Wang, Xue

doi:10.1016/j.jfineco.2010.03.001

Cited by 193 publications

(85 citation statements)

References 37 publications

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“…Prior research indicates that CEOs are more likely to be dismissed when a firm's performance fails to meet the market's expectation (Bushman et al 2010;Lee et al 2012;Jenter and Kanaan 2015). A poorly perceived CEO is considered a symptom of the board's failure to carry out its monitoring duties over the CEO (Fischer et al 2009).…”

Section: Sop Ceo Turnover and Outside Directorshipmentioning

confidence: 99%

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

et al. 2016

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Abstract"Say on pay" legislation has been introduced in several countries but Australia's version, namely the "two-strikes" rule, is unique in that it empowers shareholders to vote on a board spill if the compensation report of a public company receives 25% or more dissenting votes for two consecutive years. We test the proposition that the "two strikes" rule has increased directors' accountability beyond executive pay because it has substantially lowered the cost to activists of organizing sufficient votes to threaten managers with a board spill. Consistent with this expectation, we find Australian firms respond to negative say-on-pay votes by curbing excessive CEO pay, reducing the growth rate of pay and changing the pay mix. In addition, the results suggest that the market regards negative SOP votes as a value-destroying signal since there is a negative market reaction, lower valuation and long-run underperformance. We also find an increase in CEO turnover but directors do not seem to bear reputational costs through the loss of outside directorships. The findings provide important insights to investors, company directors and regulators.

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Section: Sop Ceo Turnover and Outside Directorshipmentioning

confidence: 99%

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

et al. 2016

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“…Forced turnover or other career concerns provide another potential reason for managers to avoid investing in value-increasing risky projects, even in the absence of large undiversified equity positions (Amihud and Lev, 1981). For example, heightened risk increases managers' likelihood of termination (Bushman, Dai, andWang, 2010; Peters andWagner, 2014) and therefore career concerns may provide additional incentives for managers to pass up risky projects that would increase firm value.…”

Section: Managerial Risk Aversion and Agency Conflictsmentioning

confidence: 99%

Risk-Return Tradeoffs and Managerial Incentives

Tsui

2015

SSRN Journal

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Moral hazard theory posits that managerial risk aversion imposes agency costs on shareholders, and firms respond by providing risk-taking incentives to mitigate these costs. The underlying assumption in this literature is that increasing shareholder value requires increasing risk, yet there is limited empirical evidence supporting this assumption or the role of such risk-return tradeoffs in incentive compensation design. Using measures based on the firm's stock price, I find that shareholder value increases with risk, consistent with managerial risk aversion imposing agency costs on shareholders. I also find that firms provide managers with more risk-taking incentives when this risk-return relation is more positive and thus potential risk-related agency costs are more severe. This finding is strongest among firms where value increases with idiosyncratic rather than systematic risk, consistent with theory that these agency costs arise primarily from managers' exposure to idiosyncratic risk. Overall, these results are consistent with firms designing managerial compensation contracts to mitigate risk-related agency costs. Additional findings highlight that the incentives from equity-based compensation depend on the risk-return tradeoffs that managers face, providing one explanation for the conflicting results in prior literature regarding the incentives from managerial stock price exposure. Degree Type DissertationDegree Name Moral hazard theory posits that managerial risk aversion imposes agency costs on shareholders, and firms respond by providing risk-taking incentives to mitigate these costs. The underlying assumption in this literature is that increasing shareholder value requires increasing risk, yet there is limited empirical evidence supporting this assumption or the role of such risk-return tradeoffs in incentive compensation design. Using measures based on the firm's stock price, I find that shareholder value increases with risk, consistent with managerial risk aversion imposing agency costs on shareholders. I also find that firms provide managers with more risk-taking incentives when this risk-return relation is more positive and thus potential risk-related agency costs are more severe. This finding is strongest among firms where value increases with idiosyncratic rather than systematic risk, consistent with theory that these agency costs arise primarily from managers' exposure to idiosyncratic risk. Overall, these results are consistent with firms designing managerial compensation contracts to mitigate risk-related agency costs. Additional findings highlight that the incentives from equity-based compensation depend on the risk-return tradeoffs that managers face, providing one explanation for the conflicting results in prior literature regarding the incentives from managerial stock price exposure. Doctor of Philosophy (PhD)Graduatev

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“…The CEO entrenchment variable Most often, the operationalization of directors' entrenchment is performed using the following criteria: the share of capital held by directors', the duration in officer of a director ( [7], the CEO age [66], the number of terms registered by the directors [81], anti-takeover defense strategy [62] and the directors turnover [15]. In the present research work, three entrenchment indicators have been applied "ENTRCH": the registered number of terms undertaken by the CEO, the mean number of terms registered by directors in their entirely, and the CEO age.…”

Section: The Explanatory Variablesmentioning

confidence: 99%

ESOPs, CEO Entrenchment and Corporate Social Performance

Jarboui¹

2013

IJBER

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Abstract:The purpose of this study is to examine whether employee stock ownership plans (ESOPs) and CEO entrenchment affect social performance. Our central question: does employees' participation in the system of corporate governance (shareholding and presence in the boards of directors and supervisory boards) influence social performance in the context of manager's active behavior? One important result of the multi-varied analyses (logistic regression) is that on the whole employees, if they exert an influence on the determination of social performance in the context of non-financial French firms, are relatively powerless, on their own to explain this complex phenomenon. The findings contribute to explain the social performance and they have implications for firms that decide to engage in ESOP plans in French context.

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Risk and CEO turnover

Cited by 193 publications

References 37 publications

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

Life after a Shareholder Pay 'Strike': Consequences for ASX-Listed Firms

Risk-Return Tradeoffs and Managerial Incentives

ESOPs, CEO Entrenchment and Corporate Social Performance

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