Termination risk and managerial risk takingJournal of Corporate Finance (2007)
We test the hypothesis that managers who face a high termination risk make less risky investments than the managers who face a low termination risk. A 10% increase in our measure of termination risk is associated with a 5%–23% decline in stock returns volatility for the median firm in our sample. We also find that for CEOs who are more likely to be fired in the event of investment failure, the inhibiting effect of termination risk appears to offset the positive effect of convexity of managerial compensation on managerial risk taking. These results are robust to alternative definitions of forced turnover and various measures of firm performances.
- Executive compensation,
- Management turnover,
- Incentive contacts,
Publication DateMarch, 2007
Citation InformationAtreya Chakraborty, Shahbaz A Sheikh and Narayanana Subramanian. "Termination risk and managerial risk taking" Journal of Corporate Finance Vol. 13 (2007)
Available at: http://works.bepress.com/shahbaz_sheikh/3/