CEOs' pay-performance sensitivity (delta) is higher in the first year after being hired than in the following years. I explain this finding with reference to CEO prior uncertainty: due to information asymmetry and/or uncertainty about the quality of the match between a CEO and a firm, first-year...

I investigate how a CEO's prior performance affects her managerial decision making. Controlling for CEO fixed effects and employing reference points, I find that CEOs choose less risky projects after making gains. This result suggests that following good performance, a CEO feels relaxed and...