Abstract
M.Com. (Finance)
Extensive research has been conducted on the impact of top management or CEO turnover on various aspects of business. These studies have used various methodologies, however, they have yielded findings which are inconsistent or even contradictory. One of the reasons for this is the sheer number of factors that, jointly combined, determine the impact of the turnover on the company. This study provides a different angle on this topic by examining the way in which stock prices react to CEO turnover announcements. This study identified the key factors when determining the direction and magnitude of the stock price reactions to CEO turnover, if there was indeed a reaction. The factors that were looked at were the type of departure (forced or voluntary), the type of replacement (internal or external), prior firm performance, succession planning, whether the outgoing CEO was part of the founding team and the length of time after listing before the turnover event.
The sample consisted of listed companies in the technology sector on the NASDAQ in 2005, 2006 and 2007. This time period included 26 listings and 19 CEO turnover events. An event study methodology was used to analyse these events.
The findings of this research were mixed, indicating that in most cases, the share price reaction to CEO turnovers was not statistically significant. The findings indicate that in forced CEO turnovers where the replacement was an external candidate, the share price reaction was statistically significant. The findings suggests that further research is needed on the subject of forced CEO turnovers. It was also found that on their own, the factors studied were not significant, however, further research is required into the way in which these factors combine to impact share price reaction to CEO turnover announcements.