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The Impact of CEO Turnover on Equity Volatility

44 Pages Posted: 3 Nov 2008  

Matthew J. Clayton

University of Virginia - McIntire School of Commerce

Jay C. Hartzel

affiliation not provided to SSRN

Joshua V. Rosenberg

Federal Reserve Bank of New York

Multiple version iconThere are 4 versions of this paper

Date Written: August 2000

Abstract

A change in executive leadership is a significant event in the life of a firm. Our paper investigates a potentially significant consequence of a CEO turnover: a change in equity volatility. We develop several hypotheses about how CEO changes might affect stock price volatility, and test these hypotheses using a sample of 872 CEO changes over the 1979-1995 period. We find that volatility increases following a CEO turnover, even for the most frequenttype, when a CEO leaves voluntarily and is replaced by someone from inside the firm. Ourresults indicate that forced turnovers, which are expected to result in large strategy changes, increase volatility more than voluntary turnovers. Outside successions, which are expected to result in a successor CEO with less certain skill in managing the firm's operations, increase volatility more than inside turnovers. We also document a greater stock-price response to earnings announcements around CEO turnover, consistent with more informative signals of value driving the increased volatility. Controls for firm-specific characteristics indicate that the volatility changes cannot be entirely attributed to factors such as changes in firm operations, firm size, and both volatility change and performance prior to the turnover.

Suggested Citation

Clayton, Matthew J. and Hartzel, Jay C. and Rosenberg, Joshua V., The Impact of CEO Turnover on Equity Volatility (August 2000). NYU Working Paper No. FIN-00-002. Available at SSRN: https://ssrn.com/abstract=1294617

Matthew J. Clayton (Contact Author)

University of Virginia - McIntire School of Commerce ( email )

P.O. Box 400173
Charlottesville, VA 22904-4173
United States
434-243-4043 (Phone)
434-924-7074 (Fax)

Jay C. Hartzel

affiliation not provided to SSRN

No Address Available

Joshua V. Rosenberg

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-6317 (Phone)
212-720-1582 (Fax)

HOME PAGE: http://www.ny.frb.org/research/economists/rosenberg/index.html

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