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Abstract
This dissertation examines the consequences to CEOs of reporting losses, including reductions in pay, shifts in the composition of pay, and job termination. The first hypothesis relates current and prior year accounting performance to the level of CEO cash bonus and stock-based incentive compensation. Distinctions are made between current and prior period performance, and profit and loss years. The second hypothesis predicts a shift from cash-based to stock-based pay in loss periods. The third hypothesis proposes that the rate of CEO turnover in the year subsequent to a loss is greater than the turnover rate in the year prior to the loss.|The empirical results are generally consistent with the hypotheses. I find a significant positive association between current period CEO cash bonus and stock-based awards and current year profits. However, there is no relation between cash bonuses and earnings in loss years. This result is primarily due to CEOs not receiving cash bonuses when a loss is reported. Additionally, I find a significant increase in the stock-based proportion of incentive pay after a loss is reported. A significant negative association is found between cash bonus and prior year losses and a positive relation is found between stock-based awards and prior year profits. Finally, I find that CEO turnover subsequent to a loss is significantly higher than prior to the loss when the firm reports profits. In sum, the evidence in this dissertation suggests that there are discernible consequences to a CEO who reports a loss.