Under New Management: Equity Issues and the Attribution of Past Returns
Malcolm P. Baker
Harvard Business School; National Bureau of Economic Research (NBER)
Harvard Business School
May 1, 2009
There is a strong link between measures of stock market performance, such as changes in Tobin's Q or past stock returns, and equity issues. Typically, this performance is thought to be a characteristic of the firm, not the CEO who happens to run the firm. In contrast to this conventional wisdom, we find that equity issues depend on changes in Q and returns to a greater extent if the current CEO was at the helm when those past returns were realized. What we label the CEO-specific Q and past return explains equity issuance, but it does not explain debt issuance, investment, or profitability. Two discontinuity analyses show that the specific share price that the current CEO inherited is an important reference point, while salient share prices prior to turnover are not. A corollary is that a firm with poor stock market performance cannot, or will not, raise new capital unless the current CEO is replaced.
Number of Pages in PDF File: 52working papers series
Date posted: April 10, 2009 ; Last revised: May 5, 2009
© 2013 Social Science Electronic Publishing, Inc. All Rights Reserved.
This page was processed by apollo2 in 0.500 seconds