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

59 Pages Posted: 12 May 2020 Last revised: 21 Feb 2024

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Y. Christine Liu

Bentley University; University of Toronto - Rotman School of Management

Xu Tian

University of Georgia - Terry College of Business - Department of Finance

Haofei Zhang

Nankai University - School of Finance

Date Written: January 22, 2018

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

Suggested Citation

John, Kose and Liu, Y. Christine and Tian, Xu and Zhang, Haofei, Voluntary or Forced CEO Turnover? Asymmetric Information, Disclosure Strategies, and Market Reactions (January 22, 2018). NYU Stern School of Business, Available at SSRN: https://ssrn.com/abstract=3578104 or http://dx.doi.org/10.2139/ssrn.3578104

Kose John

New York University (NYU) - Department of Finance ( email )

Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
212-998-0337 (Phone)
212-995-4233 (Fax)

Y. Christine Liu

Bentley University ( email )

175 Forest Street
Waltham, MA 02145
United States

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

Xu Tian (Contact Author)

University of Georgia - Terry College of Business - Department of Finance ( email )

620 S Lumpkin St
Athens, GA 30602
United States

HOME PAGE: http://www.xutianur.com

Haofei Zhang

Nankai University - School of Finance ( email )

38 Tongyan Road, Jinnan District
Tianjin, Tianjin 300350
China

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