Are Forced Turnovers Good or Bad News?
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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