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Researchers Defend Big Money CEO Severance Pay

Joe Mont | September 30, 2015

A surefire way for a company to garner bad press and anger investors is to reward an outgoing, terminated CEO with a hefty payout despite poor firm performance. A recent study detailed in the September/October issue of The Accounting Review, a publication of the American Accounting Association journal, puts a contrarian spin on those controversies and suggests these agreements are often beneficial for a company and counter the pressure on managers to deliver short-term performance at the expense of long-term goals and investments.

The academic paper, “CEO Contractual Protection and Managerial Short-Termism,” makes the case that CEOs with contracts that protect them from being terminated without cause, or that grant them generous severance packages if they are,  make them “less likely to...

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