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The Impact of CEO Turnover on Equity Volatility

Author

Listed:
  • Matthew C. Clayton

    (Rutgers University Business School)

  • Jay C. Hartzell

    (University of Texas at Austin)

  • Joshua Rosenberg

    (Federal Reserve Bank of New York)

Abstract

This study investigates the effect on stock-price volatility of a significant event in the life of the firm, a change in its CEO. We find significant, long-lived increases in volatility following CEO turnover after controlling for firm characteristics and marketwide volatility. These increases are larger after forced departures and outside successions following voluntary departures. Stock prices also respond more strongly to earnings announcements following turnovers. These results are consistent with more informative signals of value driving the increased volatility, helping resolve two sources of uncertainty: possible changes in the firm's strategy and doubt about the successor CEO's ability.

Suggested Citation

  • Matthew C. Clayton & Jay C. Hartzell & Joshua Rosenberg, 2005. "The Impact of CEO Turnover on Equity Volatility," The Journal of Business, University of Chicago Press, vol. 78(5), pages 1779-1808, September.
  • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:5:p:1779-1808
    DOI: 10.1086/431442
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    More about this item

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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