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The Executive Turnover Risk Premium




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    • Peters is with University of Amsterdam, and Wagner is with Swiss Finance Institute (University of Zurich), CEPR, ECGI, and Harvard University. We thank Cam Harvey (the Editor), an anonymous Associate Editor, and an anonymous referee for excellent comments. We are grateful to Zhonglan Dai, Cristian Dezsö, Florian Eugster, Dirk Jenter, Greg Nini, Bob Parrino, and Luke Taylor for generously sharing data from their respective papers. We thank Darrell Duffie, Rajna Gibson, Stuart Gillan, Michel Habib, Jay Hartzell (AFA discussant), Fritz Henderson, Mark Huson, Dirk Jenter, Gary King, Camelia Kuhnen, Michael Lemmon, Ulrike Malmendier, Kasper Meisner Nielsen, Enrico Moretti, Kevin Murphy, Bob Parrino, Josh Pollet, Zacharias Sautner, Laura Starks, René Stulz, Michael Wolf, David Yermack, and Jeffrey Zwiebel for discussions, and seminar participants at the CEPR European Summer Symposium in Financial Markets, the FMA Asian Conference, the NCCR FINRISK annual meeting, the SFI annual meeting, the Midwest Finance Association conference, the University of Vienna, the Helsinki School of Economics, UNC, Cranfield University, Amsterdam Business School, UC Berkeley, University of Geneva, University of Mannheim, and Georgia State University for comments. We also thank the Swiss Finance Institute, the NCCR FINRISK, and the University of Zurich Research Priority Program “Finance and Financial Markets” for financial support. Wagner expresses his heartfelt thanks to Christina Aiko Mayer for her simply wonderful support.


We establish that CEOs of companies experiencing volatile industry conditions are more likely to be dismissed. At the same time, accounting for various other factors, industry risk is unlikely to be associated with CEO compensation other than through dismissal risk. Using this identification strategy, we document that CEO turnover risk is significantly positively associated with compensation. This finding is important because job-risk-compensating wage differentials arise naturally in competitive labor markets. By contrast, the evidence rejects an entrenchment model according to which powerful CEOs have lower job risk and at the same time secure higher compensation.

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