Finance Seminar Series

Boris Nikolov, Professor of Finance at HEC Lausanne, University of Lausanne. Director of the Department of Finance and Swiss Finance Institute Professor

A light lunch will be available outside W4.05 from 12:00.

We document a negative relation between CEO tenure and both corporate leverage and the level of cash flow risk. We rationalise this evidence in a dynamic investment and financing model where a risk averse CEO makes corporate decisions over a finite tenure span. In the model, the CEO enjoys quiet life by under- reacting to both good and bad profitability shocks. The CEO is fired after poor performance but termination decreases with tenure. We structurally estimate the model and show that quiet life is key in rationalising corporate trends over the CEO tenure.

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