Voluntary or Forced CEO Turnover? Asymmetric Information, Disclosure Strategies, and Market Reactions

Abstract

Using a hand-collected sample of 1,419 CEO turnover announcements gathered from Factiva
News, we study the market reaction to these announcements in the context of information frictions.
We find that the market reaction to forced CEO turnovers tends to be negative, particularly
when the level of asymmetric information between corporate insiders and their investors is high.
In contrast, for voluntary CEO turnovers, the market reaction is negligible and does not correlate
with the level of asymmetric information. Furthermore, we observe that in scenarios of high
information asymmetry, companies often report forced turnovers as voluntary, eliciting a less
negative market response. Overall, our results suggest that firms strategically disclose information
about CEO turnover to avoid negative market reactions. 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, strategic disclosure, market reaction.

JEL Classification: G14; G30; G34