The Wealth Effects of Company Initiated Management Changes

14 Pages Posted: 23 May 2006

See all articles by Eugene P. H. Furtado

Eugene P. H. Furtado

University of San Diego

Michael S. Rozeff

SUNY at Buffalo - Department of Financial & Managerial Economics

Abstract

The essence of corporate control includes the hiring and firing of key managers. We examine changes in equity values when the Board of Directors appoints and dismisses top-level managers. The evidence suggests that management changes signal shifts in company policy and raise shareholder wealth, internal promotions confirm the soundness of investment by large companies in firm-specific human capital while external appointments do not, promotions occur more often than external appointments but decline in importance as firm size decreases, and dismissal is not a favored means to handle managerial underperformance but is associated with stock price increases when used.

Keywords: management changes, promotions, appointments, managerial labor market

JEL Classification: G30, G32, G34, J44

Suggested Citation

Furtado, Eugene P. H. and Rozeff, Michael S., The Wealth Effects of Company Initiated Management Changes. Journal of Financial Economics, Vol. 18, 1987. Available at SSRN: https://ssrn.com/abstract=903542

Eugene P. H. Furtado

University of San Diego

5998 Alcala Park
San Diego, CA 92110-2492

Michael S. Rozeff (Contact Author)

SUNY at Buffalo - Department of Financial & Managerial Economics ( email )

Buffalo, NY 14260
United States

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