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The Importance of Board Quality in the Event of a CEO Death

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Author Info

  • Kenneth A. Borokhovich
  • Kelly R. Brunarski
  • Maura S. Donahue
  • Yvette S. Harman
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    Abstract

    We examine board quality and executive replacement decisions around deaths of senior executives. Stock price reactions to executive deaths are positively related to board independence. Controlling for such factors as the deceased's stockholdings, outside blockholdings, board size, and whether the deceased was a founder, board independence is the most significant factor explaining abnormal returns. Board independence is particularly important when there is no apparent successor and firm performance is poor. The results are consistent with independent boards being reluctant to discipline poorly performing incumbent managers, but nevertheless using the opportunity of an executive death to improve the quality of management. Copyright 2006, The Eastern Finance Association.

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    Bibliographic Info

    Article provided by Eastern Finance Association in its journal Financial Review.

    Volume (Year): 41 (2006)
    Issue (Month): 3 (08)
    Pages: 307-337

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    Handle: RePEc:bla:finrev:v:41:y:2006:i:3:p:307-337

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    Web page: http://www.easternfinance.org/
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    Web: http://www.blackwellpublishing.com/subs.asp?ref=0732-8516

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    Cited by:
    1. Rokiah Ishak Author_Email:, 2011. "Corporate Performance, Ceo Power And Ceo Turnover: Evidence From Malaysian Public Listed Companies," 2nd International Conference on Business and Economic Research (2nd ICBER 2011) Proceeding 2011-480, Conference Master Resources.
    2. Nguyen, Bang Dang & Nielsen, Kasper Meisner, 2010. "The value of independent directors: Evidence from sudden deaths," Journal of Financial Economics, Elsevier, vol. 98(3), pages 550-567, December.
    3. Zahid Iqbal & Kun Wang & Sewon O, 2011. "Board independence and market reactions around news of stock option backdating," Journal of Economics and Finance, Springer, vol. 35(1), pages 104-115, January.
    4. Perryman, Alexa A. & Butler, Frank C. & Martin, John A. & Ferris, Gerald R., 2010. "When the CEO is ill: Keeping quiet or going public?," Business Horizons, Elsevier, vol. 53(1), pages 21-29, January.
    5. Rongbing Huang & James G. Tompkins, 2010. "Corporate governance and investor reactions to seasoned equity offerings," Managerial Finance, Emerald Group Publishing, vol. 36(7), pages 603-628, July.

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