The masquerade ball of the CEOs and the mask of excessive risk

Çitçi, Sadettin Haluk and İnci, Eren (2016) The masquerade ball of the CEOs and the mask of excessive risk. Economic Modelling, 58 . pp. 383-393. ISSN 0264-9993 (Print) 1873-6122 (Online)

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Two well-known explanations for excessive risk taking by CEOs are limited liability, which protects them from the downward risks of their project choices, and convex compensation schemes that encourage risk taking. This paper provides a career-concerns-based motive for why a CEO might choose an excessively risky project even in the absence of them. A CEO of unknown managerial ability could be fired if she is found to be below average. To limit this layoff risk, she tries to conceal her true type by choosing excessively risky projects. Excessive risk taking makes the firm unable to determine if a poor outcome resulted from incompetency or negative risk realization.
Item Type: Article
Uncontrolled Keywords: Career concern; CEO turnover; Excessive risk taking; Managerial conservatism; Reputation
Subjects: H Social Sciences > HB Economic Theory
Divisions: Faculty of Arts and Social Sciences > Academic programs > Economics
Faculty of Arts and Social Sciences
Depositing User: Eren İnci
Date Deposited: 17 Aug 2016 14:46
Last Modified: 22 May 2019 13:39

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