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Share Price Reactions to CEO Resignations and Large Shareholder Monitoring in Listed French Companies


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  • Dherment-Ferere, I.
  • Renneboog, L.D.R.

    (Tilburg University, Center for Economic Research)


This study has analysed the share price reactions to changes in top management.A distinction was made among different types of CEO turnover: forced resignation, voluntary departures and age-related retirements.The announcement of a forced CEO resignation is hailed favourably by the market with a small but significantly positive abnormal return of 0.5%.The market may have anticipated the forced turnover since the abnormal return over a one-month period prior to the turnover amounts to 6%.Wher as voluntary resignations do not cause a price reactions, age-related turnover triggers a small negative price reaction. Subsequently, a more detailed classification of the change of top management was made based on the background of the successor (an internal versus external candidate), on the size of the corporation and the degree of corporate diversification.Expectedly, the nomination of an external manager following the performance-related forced resignation of a CEO causes a strong increase in abnormal returns of more than 2%.The cumulative abnormal return of an internal CEO promotion in a poorly performing firms drops by almost 1% on the day of the announcement.Presumably, this is because the internal manager is held (partially) responsible for past poor performance.In companies with good past performance and with internal succession, there is a price decline, but this is not statistically significant.The paper also analysed which corporate governance mechanisms are responsible for forced CEO turnover.A logit regression which accounted for time and industry specific fixed effects did not reveal a relation between performance and turnover.Furthermore, institutional investors, banks and the government do not seem to provoke CEO departures even if they own large blocks of equity.We did not find evidence that the government exerts control in the companies in which it holds majority shareholdings.In contrast, when industrial companies are major owners, there is evidence that forced turnover is facilitated.It also seems that it is easier to remove management in smaller companies than in larger ones.On the part of holding companies, there is only some evidence that they take a monitoring role in the case of other listed holding companies.No correlation was discovered between the degree of leverage and forced CEOs departures, although CEO turnover is acilitated if creditors have their own representatives on the board.Likewise, a high proportion of shareholder representatives on the board leads to a higher probability of forced CEO resignations.However, this probability decreases when the founding family is represented by one or more (executive) directors.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 2000-70.

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Date of creation: 2000
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Handle: RePEc:dgr:kubcen:200070

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Keywords: corporate governance; managerial disciplining; ownership structure; CEO succession; event study;

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Cited by:
  1. Peter Roosenboom, 2005. "Bargaining on Board Structure at the Initial Public Offering," Journal of Management and Governance, Springer, vol. 9(2), pages 171-198, 06.
  2. Axel Kind & Yves Schläpfer, 2011. "Are Forced Turnovers Good or Bad News?," Working papers 2011/10, Faculty of Business and Economics - University of Basel.
  3. Goergen, M. & Renneboog, L.D.R., 2005. "Shareholder Lock-In Contracts: Share Price and Trading Volume Effects at the Lock-In Expiry," Discussion Paper 2005-030, Tilburg University, Tilburg Law and Economic Center.
  4. Isabelle Allemand, 2009. "Analyse des liens entre les départs de dirigeants suite à une mauvaise performance et la création de valeur: une étude menée en France," Revue Finance Contrôle Stratégie,, vol. 12(2), pages 69-90, June.
  5. Sweder van Wijnbergen & Leontine Treur, 2011. "State Aid and Bank Intervention: The ING Illiquid Assets Back-up Facility (IABF)," Tinbergen Institute Discussion Papers 11-146/2/DSF26, Tinbergen Institute, revised 27 Oct 2011.
  6. Amy Kam & David Citron & Gulnur Muradoglu, 2010. "Financial distress resolution in China – two case studies," Qualitative Research in Financial Markets, Emerald Group Publishing, vol. 2(2), pages 46-79, October.
  7. Cools, Kees & van Praag, Mirjam, 2007. "The Value Relevance of Top Executive Departures: Evidence from the Netherlands," IZA Discussion Papers 3054, Institute for the Study of Labor (IZA).
  8. Kam, Amy & Citron, David & Muradoglu, Gulnur, 2008. "Distress and restructuring in China: Does ownership matter?," China Economic Review, Elsevier, vol. 19(4), pages 567-579, December.
  9. Dherment-Ferere, Isabelle & Köke, Jens & Renneboog, Luc, 2001. "Corporate monitoring by blockholders in Europe: empirical evidence of managerial disciplining in Belgium, France, Germany, and the UK," ZEW Discussion Papers 01-24, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  10. Isabelle Allemand, 2009. "Analyse des liens entre les départs de dirigeants suite à une mauvaise performance et la création de valeur:une étude menée en France," Working Papers CREGO 1090101, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
  11. Roosenboom, Peter & van der Goot, Tjalling, 2005. "The effect of ownership and control on market valuation: Evidence from initial public offerings in The Netherlands," International Review of Financial Analysis, Elsevier, vol. 14(1), pages 43-59.


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