Under New Management: Equity Issues and the Attribution of Past Returns

30 Pages Posted: 10 Apr 2009 Last revised: 28 Oct 2015

See all articles by Malcolm P. Baker

Malcolm P. Baker

Harvard Business School; National Bureau of Economic Research (NBER)

Yuhai Xuan

University of California, Irvine - Paul Merage School of Business

Date Written: October 2015

Abstract

There is a strong link between measures of stock market performance and subsequent equity issues. We find that management turnover weakens the link between equity issues and the returns that preceded the new CEO. Moreover, there is a discontinuity in the distribution of equity issues around the specific share price that the CEO inherited, while there is no discontinuity around salient share prices prior to turnover. The evidence suggests that capital allocation involves an attribution of past returns not only to the firm but also to its CEO. A corollary is that a firm with poor stock market performance may be better able to raise new capital if its current CEO is replaced.

Suggested Citation

Baker, Malcolm P. and Xuan, Yuhai, Under New Management: Equity Issues and the Attribution of Past Returns (October 2015). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: https://ssrn.com/abstract=1376474 or http://dx.doi.org/10.2139/ssrn.1376474

Malcolm P. Baker

Harvard Business School ( email )

Boston, MA 02163
United States
617-495-6566 (Phone)

HOME PAGE: http://www.people.hbs.edu/mbaker

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Yuhai Xuan (Contact Author)

University of California, Irvine - Paul Merage School of Business ( email )

4291 Pereira Drive
Irvine, CA California 92697-3125
United States

HOME PAGE: http://yuhai.merage.uci.edu/

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