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Are Forced Turnovers Good or Bad News?

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  • Axel Kind

    ()

  • Yves Schläpfer

    (University of Basel)

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    Abstract

    To gain insights� about� the� quality� of board’s� firing� decisions,� we investigate� abnormal stock returns and operating performance around CEO-turnover announcements in a new hand- collected sample of 208 “clean” turnover events between January 1998 and June 2009. Unlike the� majority� of previous� studies,� we show that� forced turnovers� do not� per se represent� a positive signal to hareholders.� On the contrary, investors seem to critically assess the board’s firing decision by considering the quality of the departing manager.� When an outperforming CEO is dismissed or forced to leave - an event that occurs in as many as 35% of all dismissals in our sample - shareholders disesteem the board’s decision.� This finding is confirmed in multivariate cross-sectional regressions, holds for different time subperiods, and is robust to various event-test specifications and proxies of CEO quality.

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    Bibliographic Info

    Paper provided by Faculty of Business and Economics - University of Basel in its series Working papers with number 2011/10.

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    Date of creation: 2011
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    Handle: RePEc:bsl:wpaper:2011/10

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    Related research

    Keywords: CEO turnover; Corporate governance; Firm performance;

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    1. Robert Neumann & Torben Voetmann, 2005. "Top executive turnovers: Separating decision and control rights," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 25-37.
    2. Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
    3. Jenter, Dirk & Kanaan, Fadi, 2008. "CEO Turnover and Relative Performance Evaluation," Research Papers 1992, Stanford University, Graduate School of Business.
    4. Corrado, Charles J., 1989. "A nonparametric test for abnormal security-price performance in event studies," Journal of Financial Economics, Elsevier, vol. 23(2), pages 385-395, August.
    5. Xin Chang & Sudipto Dasgupta & Gilles Hilary, 2006. "Analyst Coverage and Financing Decisions," Journal of Finance, American Finance Association, vol. 61(6), pages 3009-3048, December.
    6. Dherment-Ferere, I. & Renneboog, L.D.R., 2000. "Share Price Reactions to CEO Resignations and Large Shareholder Monitoring in Listed French Companies," Discussion Paper 2000-70, Tilburg University, Center for Economic Research.
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