Information Transfer Effects of Senior Executives' Migrations and Subsequent Write-Offs
71 Pages Posted: 16 Nov 2008
Date Written: January 2005
In this study, we consider whether the market conditions its reactions to a senior executive s (SE) move from an origin company (OC) to a destination company (DC) onthe SE s past performance and any other information impounded in the market reaction to the SE s emigration from the OC. We also examine whether the market perceives abenefit in the hiring of an SE with an industry-specific background. We find that, with regard to migration events, the performance of the OC accounting and stock before the SE s migration is positively associated with the market reaction to the immigration event only when the OC and the DC are members of the same industry. With respect to an OC s contiguously subsequent write-off and restructuring events, we conjecture that subsequent large restructuring events signal hitherto unrecognized shortcomings of theemigrating SE, whereas non-restructuring asset write-offs are more likely to be amanifestation of neutral (with respect to inferences regarding the quality of theemigrating SE) big baths taken by the OC s incoming SE. We hypothesize and find that,ceteris paribus, the market reaction to the DC s stock at the time of the OC sannouncement of a post-immigration write-off or restructuring is negatively associatedwith the OC s pre-emigration performance (which is predominantly positive in oursample), and possibly non-negatively associated with an asset write-off (which is not a restructuring event). We also conjecture that these effects are enhanced (become more negative) when the DC imports an SE from a competitor.
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