CEO JOB SECURITY AND RISK-TAKING§

We use the time to expiration of employment contracts to estimate CEO turnover probability and its effects on risk-taking. Protection against dismissal should encourage CEOs to pursue riskier projects. Indeed, we find that firms with lower CEO turnover probability exhibit higher return volatility, especially idiosyncratic risk. An increase in turnover probability of one standard deviation is associated with a volatility decline of 17 basis points. This is driven mainly by changes in investment and is not associated with compensation or leverage. Our results are robust to controlling for firm- or industry-specific cycles and hold for new and continuing CEOs