Event studies focus on the impact of particular types of firm-specific events on the prices of the affected firms' securities. In this paper, observed stock return data are employed to examine various methodologies which are used 111 event studies to measure security price performance. Abnormal performance is Introduced into this data. We find that a simple methodology based on the market model performs well under a wide variety of conditions.In some situations, even simpler methods which do not explicitly adjust for marketwide factors or for risk perform no worse than the market model. We also show how misuse of any of the methodologies can result in false inferences about the presence of abnormal performance.

This p~er studies the association between a finn's stock returns and subsequent top management chAMes. Con~ieut w~th hmmml monitoring of management, there is an inverse relation between the probability of a management change and a firm's share performance. ~ relation can result from monitoring by the board, other top numagers, or b!oe?~older~. However, unless share performance is extremely good or bad, logit models have wo predictive ability. No average stock price reaction is detected a*. announcement of a top manasement change. IntroduefionThis paper investigates the relation between a firm's stock price performance and subsequent changes in its top management. A top management change is defined as any change in the set of individuals holding the title of chief executive officer (CEO), president, or chairman of the board. The major hypothesis is that the probability of a top management change is inversely related to stock price performance. Using a random sample of listed firms, the hypothesis is tested with a prediction procedure to exploit information on firms that do not experience a management change. In addition, standard event study methodology is employed to study stock price reaction to announcement of management change.The p~oer provides new evidence on mechanisms for removing inefficient managers and encouraging managers to act in shareholders' interests. Although external mechanisms such as the takeover market can serve this function [e.g., Manne (1965) and Fama and Jensen (1983)], there are potentially important internal mechani,~ms. One is monitoring by the board of *We thank Ray Ball,

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