Abstract:We examine the effect of CEO severance pay on the likelihood of CEO turnover. We find that severance pay reduces both the frequency and performance sensitivity of turnover. Moreover, we find that these reductions are especially pronounced when, conditional on poor past performance, there remain considerable uncertainties about CEOs' competence. Our findings suggest that severance pay protects CEOs against the risk of dismissal when performance is poor but may only be temporarily so. In addition, we show that v… Show more
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