The Wealth Effects of Company Initiated Management Changes
14 Pages Posted: 23 May 2006
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: Suggested Citation