Does Algorithmic Trading Affect Forced CEO Turnover?

63 Pages Posted: 13 Sep 2022 Last revised: 8 Feb 2024

See all articles by Jaewoo Kim

Jaewoo Kim

University of Oregon - Department of Accounting

Jun Oh

Hong Kong University of Science & Technology (HKUST) - Department of Accounting

Hojun Seo

Purdue University

Luo Zuo

National University of Singapore; Cornell University

Date Written: February 8, 2024

Abstract

We examine whether algorithmic trading (AT) affects the extent to which directors rely on stock returns when making CEO turnover decisions. We find that the sensitivity of forced CEO turnover to stock returns decreases with AT. This effect of AT is more pronounced when the information that AT crowds out is more likely to be new to directors, when there is more informed trading that AT dampens, when the directors’ expertise allows them to extract decision-relevant information from stock returns, and when the directors’ own information set is poor. In contrast, the effect of AT does not vary with the strength of firms’ corporate governance. Further analysis suggests that directors rely more on non-market measures and meet more frequently as AT increases. Overall, our findings suggest that directors incorporate information in stock returns regarding the CEO-firm match quality into their CEO turnover decisions and that AT deters such learning.

Keywords: Algorithmic trading, CEO turnover, CEO-firm match quality, directors, learning

JEL Classification: G30, J63, L20, E44, G19

Suggested Citation

Kim, Jaewoo and Oh, Jun and Seo, Hojun and Zuo, Luo, Does Algorithmic Trading Affect Forced CEO Turnover? (February 8, 2024). Available at SSRN: https://ssrn.com/abstract=4202175 or http://dx.doi.org/10.2139/ssrn.4202175

Jaewoo Kim

University of Oregon - Department of Accounting ( email )

Lundquist College of Business
1208 University of Oregon
Eugene, OR 97403
United States

Jun Oh

Hong Kong University of Science & Technology (HKUST) - Department of Accounting ( email )

Clear Water Bay
Kowloon
Hong Kong

Hojun Seo

Purdue University ( email )

403 W State St
West Lafayette, IN 47907
United States

Luo Zuo (Contact Author)

National University of Singapore ( email )

Cornell University ( email )

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