CEO Tenure and Risk-Taking

Abstract

This paper presents a systematic analysis of the effect of CEO tenure on risk-taking. We document an overall positive effect of tenure on risk-taking, which is inconsistent with a view of tenure as primarily an indicator of human capital investment. Although we cannot rule out the explanations of risk-taking based on the power and experience effects of tenure, our results are more consistent with interpreting tenure as an indicator of the career concerns of a manager. Consistent with this interpretation and recent theoretical work, we show that the effect of CEO tenure on risk-taking depends on the information asymmetry about CEO ability.