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CEO Turnover and the Reduction of Price Sensitivity

Authors
Journal
Journal of Corporate Finance
0929-1199
Publisher
Elsevier
Volume
25
Identifiers
DOI: 10.1016/j.jcorpfin.2014.01.007
Keywords
  • Ceo Changes
  • Managerial Incentives
  • Executive Compensation
  • Investment Policy
  • Financing Policy

Abstract

Abstract We examine managerial compensation and wealth sensitivities around CEO changes. The average new CEO is incentivized to increase the risk of the firm primarily because he holds significantly less stock than his predecessor, and in fact riskier policy choices are subsequently implemented. Similar results are obtained in a subsample of CEO changes that are due to retirements and deaths, which alleviates concerns about endogeneity. Our findings indicate that firms seem to be limited in their ability to mitigate the risk-averse behavior caused by large CEO shareholdings.

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