Stock Market Reactions to Announcements of the Board of Directors: Evidence from Italy

Posted: 31 Jan 2015

See all articles by Fabrizio Rossi

Fabrizio Rossi

University of Cassino and Southern Lazio

Richard J. Cebula

Armstrong Atlantic State University; Jacksonville University (Florida)

Date Written: January 21, 2015

Abstract

The board of directors plays an important role in corporate governance. It is an internal mechanism that controls and monitors the actions of managers and aligns the utility functions between corporate owners and managers. The board of directors performs multiple functions that concern, for example, the replacement of the managers, financial policy, the preparation of strategic plans and other actions that affect the performance of the company. The board plays an important role since on the one hand it controls the actions of management and on the other it advises the management regarding the strategies to be adopted. In this study, 100 announcements regarding the appointment of the board of directors of 100 Italian listed companies during the period 2012-2014 are investigated. The results show a positive reaction within 20 days around the announcement date. In four of the six time windows, cumulative abnormal returns (CARs) are positive and statistically significant. The positive reaction of the market would appear, however, to be linked more to the composition of the board of directors than to the size of the board of directors.

Keywords: boards of directors; corporate governance; agency theory; ownership structure; event studies; firm performance

JEL Classification: G14; G30; G34

Suggested Citation

Rossi, Fabrizio and Cebula, Richard J., Stock Market Reactions to Announcements of the Board of Directors: Evidence from Italy (January 21, 2015). Applied Economics, 2015 Forthcoming. Available at SSRN: https://ssrn.com/abstract=2557545

Fabrizio Rossi (Contact Author)

University of Cassino and Southern Lazio ( email )

Via G. Di Biasio, 43
Cassino, Frosinone 03043
Italy

Richard J. Cebula

Armstrong Atlantic State University ( email )

11935 Abercorn Street
Savannah, GA 31419
912-921-3781 (Phone)
912-921-3782 (Fax)

Jacksonville University (Florida) ( email )

Jacksonville, FL 32211
United States

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