Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/257779 
Year of Publication: 
2021
Citation: 
[Journal:] International Journal of Financial Studies [ISSN:] 2227-7072 [Volume:] 9 [Issue:] 3 [Article No.:] 34 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-22
Publisher: 
MDPI, Basel
Abstract: 
This study investigates market reactions to announcements of CEO turnover and finds that forced turnovers are not accompanied by positive returns, which contradicts the broad view that firing a CEO sends a positive signal to the market. This contradiction is further explored by focusing on the nature of not only turnover but also a firm's past performance. This study finds that the market seems to incorporate both types of information in reacting to CEO turnover announcements. Firing an underperforming CEO is viewed as a positive signal, whereas firing an outperforming CEO is viewed as a negative signal. Rather than taking early action against CEOs for a deterioration in their performance, firms appear to be firing outperforming CEOs owing to their apparent nonperformance-related reasons. This study also explores reasons behind the decision to fire a CEO from different news databases and finds that giving no clear reasons for a CEO's departure increases uncertainty in the market, thereby causing a negative market reaction. However, stating performance as the reason for the departure assures investors about the future trajectory of the firm and results in a positive market reaction.
Subjects: 
CEO turnover
CEO performance
internal conflict
reason for departure
JEL: 
G14
G30
G34
M51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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