Chief Executive Officer departures and market uncertainty

Abstract

This study investigates the effect on stock return volatility of a significant event in the life of a firm, a change in its Chief Executive Officer (CEO). Citing weaknesses in the prior literature, we bring a new approach to re-examine the issue. Firstly, we use a relatively unbiased classification system using both company announcements and media reports. Secondly, we use short-term stock return volatility as a more accurate estimator to isolate the effect of a single disclosure. We find strong evidence that the level of stock return volatility increases following announcements of CEO departures, and that the increase is significantly higher following announcements of forced departures compared to voluntary departures. The results are consistent with signalling effect theory in that forced dismissals convey previously unknown information to the market. Signed cumulative abnormal returns are also more negative for a forced CEO departure.

The impact of litigation risk on the strategic timing of management earnings forecasts

“…Finally, we examine the stock return volatility on the release date of the MEF to test H4 . We estimate stock return volatility ( VOL ) using an intraday measure, specifically the Garman and Klass () ‘best analytic scale‐invariant estimator’ in a similar manner to Cheung and Jackson (). This measure accounts for all readily available information, specifically the daily high ( H ) and low ( L ) prices as well as the opening ( O ) and closing ( C ) prices, as defined in equation (4):where a = ln( H / O ); b = ln( L / O ); x = ln( C / O ), and the required inputs for price data are obtained from the Core Research Database .…”

“…To empirically test this prediction, we estimate equation (5) for AMC :where lagVOL is the daily volatility from day ‐1, and all other variables are as previously defined. We include the volatility from the previous day, as prior literature shows this to be the best explanator of the current day's volatility (Cheung and Jackson, ). We do not include LIT2 × BAD and LIT3 × BAD in this model as we did in models (3) and (4) as it induces a large degree of multicollinearity.…”

Chief Executive Officer/ Managing Director Succession and Value Relevance of Accounting Numbers

“…either on market reactions that are reflected in changes of share prices, or financial and accounting performance of the firm at the end of financial year. An event study methodology is commonly used to evaluate investors' immediate reactions towards the announcement of top management succession (Cheung & Jackson 2012;Dherment-Ferere & Renneboog 2000;Ishak & Abdul Latif 2012;Rosli 2012;Setiawan et al 2011;Charitou, Patis & Vlittis 2010;Dahyaa et al 2000).…”

Justificativas do turnover de CEOs: estudo em companhias brasileiras investidas por fundos de pensão

“…A mudança de CEO em uma companhia tende a impactar na gestão da empresa e consequentemente na precificação dos seus títulos no mercado, positiva ou negativamente, dependendo, entre outros fatores da justificativa da troca de comando. Em decorrência disto, os investidores revisam suas expectativas sobre o valor da empresa em razão da relevância do papel do CEO (Cheung & Jackson, 2012 Determinadas notícias divulgadas pelas mídias ao mercado sobre as justificativas que levaram a troca do CEO podem ser mais intensamente divulgadas do que outras e a maior ou menor intensidade de divulgação influencia as decisões dos investidores. As trocas de CEOs apresentam justificativas relacionadas ao ambiente econômico, social ou político e estas tendem a interferir na avaliação e percepção do investidor.…”

“…A mudança de CEO em uma companhia tende a impactar na gestão da empresa e consequentemente na precificação dos seus títulos no mercado, positiva ou negativamente, dependendo, entre outros fatores da justificativa da troca de comando. Em decorrência disto, os investidores revisam suas expectativas sobre o valor da empresa em razão da relevância do papel do CEO (Cheung & Jackson, 2012 …”