Do Institutions Have the Information to Play a Significant Role in Corporate Governance? Direct Evidence from Institutional Trading Around CEO Turnovers

54 Pages Posted: 15 Aug 2013 Last revised: 29 Jan 2018

See all articles by Thomas J. Chemmanur

Thomas J. Chemmanur

Boston College - Carroll School of Management

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance

Yingzhen Li

The Brattle Group

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: January 19, 2018

Abstract

We use transactional level data on institutional trading around CEO turnovers to analyze the information flows and settings that allow information production and trading to act as an effective corporate governance mechanism. We find that institutional trading prior to a CEO turnover is positively related to the nature of a CEO turnover (forced versus voluntary). Further, institutions produce information partly by analyzing insider trading prior to a CEO turnover, though they are able to produce additional information independently as well. 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 signifi cant abnormal pro fits. Overall, our results are consistent with the notion that information production by institutions, and their trading making use of this information, is able to play an important corporate governance role in the setting of CEO turnovers.

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

JEL Classification: G23, G34

Suggested Citation

Chemmanur, Thomas J. and Hu, Gang and Li, Yingzhen and Xie, Jing, Do Institutions Have the Information to Play a Significant Role in Corporate Governance? Direct Evidence from Institutional Trading Around CEO Turnovers (January 19, 2018). Available at SSRN: https://ssrn.com/abstract=2309717 or http://dx.doi.org/10.2139/ssrn.2309717

Thomas J. Chemmanur (Contact Author)

Boston College - Carroll School of Management ( email )

Finance Department, 436 Fulton Hall
Carroll School of Management, Boston College
Chestnut Hill, MA 02467-3808
United States
617-552-3980 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://https://www2.bc.edu/thomas-chemmanur/

Gang Hu

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

M1038, Li Ka Shing Tower
Hung Hom, Kowloon
Hong Kong
(852) 3400 8455 (Phone)

HOME PAGE: http://ganghu.org

Yingzhen Li

The Brattle Group ( email )

201 Mission Street
Suite 2800
San Francisco, CA 94105
United States

Jing Xie

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Hung Hom
Kowloon
Hong Kong

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