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

70 Pages Posted: 12 May 2020 Last revised: 28 Dec 2021

See all articles by Kose John

Kose John

New York University (NYU) - Department of Finance

Y. Christine Liu

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 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

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

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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