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Stock market reactions to announcements of the board of directors: evidence from Italy

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  • Fabrizio Rossi
  • Richard J. Cebula

Abstract

The board of directors plays an important role in corporate governance. It is an internal mechanism that controls and monitors the actions of managers and aligns the utility functions between corporate owners and managers. The board of directors performs multiple functions that concern, for example, the replacement of the managers, financial policy, the preparation of strategic plans and other actions that affect the performance of the company. The board plays an important role since on the one hand it controls the actions of management and on the other it advises the management regarding the strategies to be adopted. In this study, 100 announcements regarding the appointment of the board of directors of 100 Italian listed companies during the period 2012-2014 are investigated. The results show a positive reaction within 20 days around the announcement date. In four of the six time windows, cumulative abnormal returns (CARs) are positive and statistically significant. The positive reaction of the market would appear, however, to be linked more to the composition of the board of directors than to the size of the board of directors.

Suggested Citation

  • Fabrizio Rossi & Richard J. Cebula, 2015. "Stock market reactions to announcements of the board of directors: evidence from Italy," Applied Economics, Taylor & Francis Journals, vol. 47(20), pages 2102-2118, April.
    • Handle: RePEc:taf:applec:v:47:y:2015:i:20:p:2102-2118
    DOI: 10.1080/00036846.2014.1002902
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    2. Luechinger, Simon & Moser, Christoph, 2020. "The European Commission and the revolving door," European Economic Review, Elsevier, vol. 127(C).
    3. Syed Shafqat Mukarram & Abubakr Saeed & Shawkat Hammoudeh & Muhammad Mustafa Raziq, 2018. "Women on Indian boards and market performance: a role-congruity theory perspective," Asian Business & Management, Palgrave Macmillan, vol. 17(1), pages 4-36, February.
    4. Ferrari, Giulia & Ferraro, Valeria & Profeta, Paola & Pronzato, Chiara D., 2018. "Do Board Gender Quotas Matter? Selection, Performance and Stock Market Effects," IZA Discussion Papers 11462, Institute of Labor Economics (IZA).
    5. Javeria Farooqi & Surendranath Jory & Thanh Ngo, 2017. "Institutional investors’ activism and credit ratings," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 41(1), pages 51-77, January.
    6. Fabrizio Rossi & Richard J. Cebula & James R. Barth, 2018. "Female representation in the boardroom and firm debt: empirical evidence from Italy," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(2), pages 315-338, April.

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