Are Forced CEO Turnovers Good or Bad News?

41 Pages Posted: 21 Sep 2010 Last revised: 1 Jun 2011

See all articles by Axel H. Kind

Axel H. Kind

University of Konstanz

Yves Schläpfer

University of Basel - Department of Finance

Date Written: May 28, 2011

Abstract

To gain insights about the quality of boards' 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 shareholders. 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.

Keywords: CEO turnover, Corporate governance, Firm performance

JEL Classification: G14, G30, G34

Suggested Citation

Kind, Axel H. and Schläpfer, Yves, Are Forced CEO Turnovers Good or Bad News? (May 28, 2011). Available at SSRN: https://ssrn.com/abstract=1679632 or http://dx.doi.org/10.2139/ssrn.1679632

Axel H. Kind

University of Konstanz

Universitätsstraße 10
Konstanz, D-78457
Germany

Yves Schläpfer (Contact Author)

University of Basel - Department of Finance ( email )

Peter Merian-Weg 6
Basel, CH-4052
Switzerland

Register to save articles to
your library

Register

Paper statistics

Downloads
504
Abstract Views
2,218
rank
56,269
PlumX Metrics