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.
|Date of creation:||2011|
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- Dirk Jenter & Fadi Kanaan, 2006.
"CEO Turnover and Relative Performance Evaluation,"
NBER Working Papers
12068, National Bureau of Economic Research, Inc.
- 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.
- repec:dgr:kubcen:200070 is not listed on IDEAS
- Brown, Stephen J. & Warner, Jerold B., 1980. "Measuring security price performance," Journal of Financial Economics, Elsevier, vol. 8(3), pages 205-258, September.
- 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.
- 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.
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