Stock Price Response to New CEO Earnings News

45 Pages Posted: 20 Aug 2015 Last revised: 23 Aug 2016

See all articles by Paul Geertsema

Paul Geertsema

University of Auckland - Department of Accounting and Finance

David H. Lont

University of Otago - Department of Accountancy and Finance

Helen Lu

University of Auckland - Department of Accounting and Finance

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Date Written: August 15, 2016

Abstract

New-CEO earnings news exhibits asymmetric effects on stock prices. Stock prices rise more on good earnings news announced by firms with new CEOs compared with those with established CEOs. By contrast, stock prices tend to fall by a smaller amount on bad earnings news for new CEOs. Both the new-CEO quality effect and the new-CEO honeymoon effect are more pronounced for CEOs appointed during challenging situations. The new-CEO quality effect is stronger for firms followed by fewer analysts, while the honeymoon effect is stronger for firms followed by more analysts – illustrating the importance of a transparent information environment.

Keywords: CEO Turnover, Unexpected Earnings, Earnings Response Coefficient, Meet and Beat Premium, Information Environment

JEL Classification: C23, G14, M40

Suggested Citation

Geertsema, Paul G. and Lont, David H. and Lu, Helen, Stock Price Response to New CEO Earnings News (August 15, 2016). 28th Australasian Finance and Banking Conference, Available at SSRN: https://ssrn.com/abstract=2647347 or http://dx.doi.org/10.2139/ssrn.2647347

Paul G. Geertsema

University of Auckland - Department of Accounting and Finance ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Helen Lu (Contact Author)

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

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