new-york-438391_1280CEOs are typically fired when boards deems performance as being poor or unacceptable, yet there is no acceptable definition of poor performance. Is there a ‘break-even point’ below which performance is deemed unacceptable? In one of my working papers titled “Accounting losses, CEO Turnover, and Turnover Risk Premium,” we contend that zero accounting profit serves as an effective break-even point in calibrating CEOs’ performance which is why losses lead to more frequent managerial turnover. Additionally, because CEOs bear a higher turnover risk for losses, we find that the job risk from losses is priced in the managerial labor market. Our results help better understand why CEOs manage earnings to avoid losses, why the stock market reaction to losses is muted, and that boards respond to accounting numbers. View the PDF.

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