Institutional Trading, Information Production, and Forced CEO Turnovers

Abstract

We analyze transaction-level data on institutional trading and examine information flows around CEO turnovers. We find that institutional trading prior to a CEO turnover is positively related to the nature of a CEO turnover (forced versus voluntary). We further find that institutions produce information partly by analyzing insider trading prior to a CEO turnover, though they are able to produce additional information independently as well. Finally, we find that trading by institutions after a forced CEO turnover with an insider as successor CEO is positively related to subsequent long-run stock returns, and realizes significant abnormal trading profits. Overall, our results are consistent with the notion that information production by institutions, and their trading making use of this information, improves the information environment around CEO turnovers.

Keywords: Corporate Governance; CEO Turnover; Institutional Trading; Information Production

JEL Classification: G23, G34