Voluntary or Forced CEO Turnover? Asymmetric Information, Disclosure Strategies, and Market Reactions
70 Pages Posted: 12 May 2020 Last revised: 28 Dec 2021
Date Written: January 22, 2018
Using a hand-collected sample of 1419 CEO turnover announcements gathered from Factiva News, we study the market reaction to CEO turnover announcements in the presence of information frictions. We find that the market reaction to forced CEO turnovers tends to be negative when the level of asymmetric information between corporate insiders and its investors is high. For voluntary CEO turnovers, the market reaction is negligible and is unrelated to the level of asymmetric information. We also find that in cases where information asymmetry is high, companies attempt to disclose forced turnovers as voluntary and this elicits a less negative market response. Overall, our results suggest that firms act strategically when disclosing information about CEO turnover to avoid a negative market reaction. The existing degree of asymmetric information combined with strategic disclosure by firms produce the equilibrium announcement effect of CEO turnovers.
Keywords: CEO turnover, information asymmetry, corporate governance, information disclosure, market reaction.
JEL Classification: G14; G30; G34
Suggested Citation: Suggested Citation