CFE1 Is A CEO Turnover Good or Bad News EFA2010

Is a CEO Turnover Good or Bad News?
Axel Kind
Yves Schlpfer
April 2010
Abstract
We investigate the information content of CEO turnovers by analyzing abnormal stock
returns and abnormal trading volumes in the surrounding of the announcement date. The
sample consists of 208 CEO turnovers between January 1998 and June 2009 for companies
belonging to the Swiss Performance Index. The single most important variable in assessing
the value of a turnover news is found to be the quality of the departing CEO as proxied by the
prior stock-price performance relative to the market. In line with economic intuition and in
accordance with previous studies, the departure of outperforming (underperforming) managers
represents bad (good) news for shareholders. Outside successions and forced turnovers yield
signicant positive abnormal returns. However, a forced turnover does not per se represent a
positive signal to shareholders. On the contrary, investors seem to critically assess the quality
of the boards ring decision by considering the quality of the departing manager. When a
talented CEO is dismissed or forced to leave, shareholders appear to disesteem the boards
decision. This nding is conrmed in multivariate cross-sectional regressions and is robust
to time subperiods and alternative test statistics. Trading volume is found to consistently
increase for all types of CEO turnovers. However, the size of the reaction crucially depends on
the characteristics of the turnover event, with forced turnovers generating the largest impact on
the turnover announcement day (+196.37%). Finally, the operating performance signicantly
increases (decreases) in the years following (preceding) CEO turnovers and reects on average
the short-term stock-price reaction around the announcement date.
Keywords: Corporate governance; CEO turnover; Firm performance; Trading volume
JEL codes: G14; G30; G34; M51
Contact information: Email A. Kind: axel.kind@unibas.ch; Email Y. Schlpfer: yves.schlaepfer@unibas.ch. A

special thanks goes to Marco Poltera for his excellent research assistance.
Department of Finance, University of Basel and Swiss Institute of Banking and Finance, University of St. Gallen.
Department of Finance, University of Basel.

Is a CEO Turnover Good or Bad News?
Abstract
We investigate the information content of CEO turnovers by analyzing abnormal stock
returns and abnormal trading volumes in the surrounding of the announcement date. The
sample consists of 208 CEO turnovers between January 1998 and June 2009 for companies
belonging to the Swiss Performance Index. The single most important variable in assessing
the value of a turnover news is found to be the quality of the departing CEO as proxied by the
prior stock-price performance relative to the market. In line with economic intuition and in
accordance with previous studies, the departure of outperforming (underperforming) managers
represents bad (good) news for shareholders. Outside successions and forced turnovers yield
signicant positive abnormal returns. However, a forced turnover does not per se represent a
positive signal to shareholders. On the contrary, investors seem to critically assess the quality
of the boards ring decision by considering the quality of the departing manager. When a
talented CEO is dismissed or forced to leave, shareholders appear to disesteem the boards
decision. This nding is conrmed in multivariate cross-sectional regressions and is robust
to time subperiods and alternative test statistics. Trading volume is found to consistently
increase for all types of CEO turnovers. However, the size of the reaction crucially depends on
the characteristics of the turnover event, with forced turnovers generating the largest impact on
the turnover announcement day (+196.37%). Finally, the operating performance signicantly
increases (decreases) in the years following (preceding) CEO turnovers and reects on average
the short-term stock-price reaction around the announcement date.
1 Introduction
The duty of a Chief Executive Officer is to maximize shareholders wealth by tak-
ing sensible management decisions. Given the scope and importance of this mission, it is evident
that a CEO turnover represents a major event in the history of any corporation, with possibly far
reaching consequences for the company and its shareholders. The aim of this paper is to assess the
information content of CEO turnovers from the stockholders perspective. In particular, we aim at
explaining the cross-sectional variation of abnormal returns by considering crucial characteristics
of the turnover, such as the departure type (forced or voluntary), the successor origin (insiders or
outsiders), the prior performance of the incumbent manager, and combinations thereof.
A real-world example should best illustrate how investors interpret the information related to a
CEO turnover for determining the value of a stock. The example refers to Mr. Fred Kindle, former
CEO of ABB Ltd, a global leader in power and automation technologies.
1
Under his leadership,
1
Despite the fact that the story of Mr. Kindle motivates very well this study and is a prime example of a
CEO turnover that achieved broad media attention and had a shocking impact on investors, we should remark that
1
ABB recovered from nancial distress and achieved a record result in 2007. In January 2005, the
date of Kindles appointment as CEO, ABBs stock price was around 6 Swiss francs. Under his
leadership the stock price rose to around 25 Swiss francs in February 2008. According to the Fi-
nancial Times, ABBs recovery qualies as a prime case study of successful company restructuring.
2
Nevertheless, on February 13, 2008, ABB surprisingly announced in an ocial statement that Fred
Kindle would leave ABB due to irreconcilable dierences about how to lead the company.
3
The
CFO of ABB, Michel Demar, was appointed interim CEO, but at that time was also considered as
a potential candidate for the position of permanent CEO. Several news agencies
4
speculated that
this decision was mainly caused by a power struggle with the president of the board, Hubertus
von Gruenberg, regarding ABBs acquisition strategy. The departure of Fred Kindle was a big
surprise to the nancial community as everybody agreed that he was doing an outstanding job at
ABB. Strikingly, the Financial Times referred to him as the wunderkind chief executive. The
fact that investors shared the same perception about Fred Kindles work performance is crucially
captured by the stock-price reaction on the announcement date of his departure. In spite of the
simultaneous announcements of a record result for the year 2007, a doubling of the dividend, and
upcoming share repurchases, the stock price dropped sharply by 5.14% on that very same day.
According to Bloomberg, ABBs stock price lost interim about 10%, which was the worst drop of
the previous three years. This example highlightens two key insights that go along with this paper.
First, investors may attribute a great importance to the information of a CEO departure. Second,
the valuation consequences of a CEO turnover strongly depend on the characteristics and circum-
stances of this event. While the academic literature has already stressed the benecial eects of
forced turnovers, the example of Mr. Kindle suggests that the prior performance of the departing
manager may convey equally important information. These insights motivate us in studying the
stock-price impact of CEO turnovers by considering a variety of characteristics associated with
these events.
A large part of prior research on CEO turnovers focuses on the relation between the CEOs
performance and the turnover probability (Coughlan and Schmidt, 1985; Weisbach, 1988; Warner,
Watts, and Wruck, 1988; Parrino, 1997; Suchard, Singh, and Barr, 2001). This strand of literature
comes to the conclusion that there is a negative relation between performance and the probability
of a (forced) turnover. However, while statistically signicant, this negative relation is found to be
economically weak.
A second strand of literature which is of immediate relevance for the hypotheses studied in this
paper investigates the impact of CEO turnovers on the companys performance. Contributions
dier with respect to the performance measures employed (stock price reactions vs. accounting
performance measures) and the characteristics of the turnovers considered: (i) outside vs. inside
successions, (ii) forced vs. voluntary turnovers, (iii) governance dierences, (iv) gender dierences,
this event could not be included in the empirical analysis due to a no-confounding-event criterion applied in the
construction of the sample. More precisely, the release of other valuation-relevant news (dividends and earnings
announcement) on the date of the dismissal of Mr. Kindle prevents us from using this data point.
2
http://www.ft.com/cms/s/0/5a5db304-da69-11dc-9bb9-0000779fd2ac.html
3
ABB Press Release: ABB CEO Fred Kindle leaves company, available at http://www.abb.com.
4
Amongst others Reuters, Bloomberg, Timesonline, Financial Times, Financial Times Deutschland, Handelsblatt
and Handelszeitung covered the news regarding the departure of Fred Kindle at ABB.
2
etc.. Table 1 presents an overview of the most important contributions in this eld together with a
summary of the main empirical ndings.
The majority of studies (Reinganum, 1985; Furtado and Roze, 1987; Warner, Watts, and Wruck,
1988; Bonnier and Bruner, 1989; Borokhovich, Parrino, and Trapani, 1996; Dherment-Ferere and
Renneboog, 2002; Huson, Parrino, and Starks, 2001; Dahya and McConnell, 2005; Adams and Mansi,
2009) detect signicant positive abnormal returns following turnovers with company-outsiders as
successors. Notable exceptions are Worrell, Davidson, and Glascock (1993) and Khanna and Poulsen
(1995). The former nd mixed results and the latter do not report signicant abnormal returns
by examining companies eventually ling for Chapter 11 protection, neither for outside nor inside
successions.
The majority of studies that also investigate the subsample of forced turnovers nd that ab-
normal returns following rings are higher than those following voluntary turnovers (Furtado and
Roze, 1987; Denis and Denis, 1995; Huson, Parrino, and Starks, 2001; Dherment-Ferere and Ren-
neboog, 2002; Adams and Mansi, 2009). Borokhovich, Parrino, and Trapani (1996) report signicant
positive abnormal performance for forced turnovers in combination with outside successions. Only
Dedman and Lin (2002) detect signicant negative abnormal returns on average after a CEOs
dismissal.
Weisbach (1988) investigates the relation between the composition of the board of directors
(insider- vs. outsider-dominated boards) and CEO turnovers. He reports positive announcement
eects but no dierence in the impact between the ring decision of outsider- and insider-dominated
boards. Similarly, Fisman, Khurana, and Rhodes-Kropf (2005) examine the role of managerial en-
trenchment for the boards ring decision and its consequence on the stock-price, nding a weakly
signicant relation between entrenchment and abnormal returns.
Lee and James (2007) and Coxbill, Sanning, and Shaer (2009) study gender eects by compar-
ing the price impact of male vs. female CEO appointments. While the former detect signicantly
lower (and negative) abnormal returns for women CEOs, the latter report a negative but insignif-
icant impact on the stock price. Finally, Johnson, Magee, Nagarajan, and Newman (1985) and
Worrell, Davidson, Chandy, and Garrison (1986) measure the stock-price reaction in the aftermath
of key-executives deaths. The latter report negative and signicant eects in association with sud-
den deaths and the former signicantly positive (negative) reactions following the death of company
founders (non-founders).
As mentioned, accounting performance measures can be used as an alternative way to assess
the value of a CEO turnover. Several papers (e.g. Denis and Denis, 1995; Khurana, 2001; Dedman
and Lin, 2002; Huson, Malatesta, and Parrino, 2004; Fisman, Khurana, and Rhodes-Kropf, 2005;
Hillier and McColgan, 2005; Dezso, 2007) investigate the impact of CEO changes on key account-
ing performance measures. Typically, the papers evidence that a CEO-turnover is preceded by
deteriorating accounting gures, which improve after the new CEO takes up his/her position. The
described pattern is generally more pronounced for forced than for voluntary turnovers.
CEO turnover in relation to manager quality (proxied by prior company or stock performance)
is investigated in Weisbach (1988) and Bonnier and Bruner (1989). Weisbach (1988) nds a strong
and negative relation between the intersection of prior stock performance with outside boards and
abnormal returns around the CEO turnover. Bonnier and Bruner (1989) investigate underperform-
3
ing rms jointly identied by the criteria of negative earnings and dividend omission prior to the
management turnover. The reason to select this particular sample of management turnover is that
the abnormal return at the announcement of a (forced) management turnover comprises two eects
as described by Warner, Watts, and Wruck (1988). First, if the turnover signals managerial quality
that is worse than anticipated then the information eect is negative. Second, the real eect is
positive if the (board-initiated) turnover is appreciated by the shareholders. Therefore, positive
abnormal returns are observed only if the real eect outweighs the information eect. By using a
sample of companies for which the bad performance has already recognized they try to reduce the
negative information eect and estimate a more accurate real eect.
In this paper, we investigate stock returns, operating return on assets, as well as trading volumes
in the surrounding of CEO turnover events. The sample consists of CEO turnovers at companies
in the Swiss Performance Index during the period between January 1998 and June 2009. The -
nal sample comprises 208 CEO turnovers. It is survivorship-bias free since it also includes CEO
turnovers at companies that exited the index. The CEO-turnover variables considered in the inves-
tigation are the successor origin, the departure type, and the prior stock performance.
This paper contributes in three ways to the existing literature. First, it corroborates the ndings
of the existing literature on CEO turnovers by employing a new hand-collected data sample. In
particular, we are able to show that the most important results reported for the US also apply to
the Swiss market. This is interesting because - as shown in LaPorta, de Silanes, and Shleifer (1999)
and Faccio and Lang (2002) - the Swiss market is characterized by a less atomistic ownership struc-
ture with more family-controlled companies and fewer active investors. Second, the paper classies
turnovers with respect to (i) the departure type of the CEO (voluntary vs. forced), (ii) the successor
origin (internal or external), (iii) the prior performance (outperformance or underperformance), and
all the interactions of those variables. Most importantly, in contrast to previous research, the paper
emphasizes that forced turnovers do not always constitute a positive signal to shareholders: Forced
turnovers of underperforming managers trigger signicantly positive abnormal returns, while forced
turnovers of overperforming managers are associated with negative abnormal returns. This suggests
that shareholders assess the quality of the boards ring decision by considering the performance
of the departing CEO. Third, instead of solely focusing on abnormal returns, the paper analyzes
the impact of CEO turnover announcements on trading volumes
5
and long-term accounting perfor-
mance measures.
The results obtained in this paper indicate that outside successors, forced turnovers, and prior
underperformance of the company under the departing manager lead to signicant positive abnor-
mal returns: +1.85%, +2.74%, and +1.94% on average for the [-2 0] event window. The largest
average abnormal returns are detected for the following two categories of CEO turnovers: (i) forced
departures in conjunction with an outside successor (+6.71%)
6
and (ii) forced departures of under-
performing managers (+5.73%). Interestingly, while forced turnovers of underperforming managers
trigger positive and signicant abnormal returns (+5.73%), forced turnovers of outperforming CEOs
are associated with negative abnormal returns (2.24%). This suggests that shareholders assess
5
To the best of our knowledge, the only study that investigates abnormal returns and trading volumes around
management-turnover announcement is Cools and van Praag (2007).
6
When not otherwise stated, the abnormal returns reported in parethesis refer to [-3 0] event windows
4
the quality of the ring decision by the board of directors by considering the prior performance of
the company under the departing CEO. The results are robust with respect to time subperiods and
a wide range of parametric and non-parametric test specications.
The trading volume of the average company aected by a CEO turnover is found to increase by
almost 130% on the announcement day. Particularly large increases in trading volume are observed
for forced-turnover announcements (mean: +196.37%) and forced turnovers of underperforming
CEOs (mean: +259.64%). In accordance with theoretical papers on the release of public informa-
tion, absolute abnormal stock returns are found to be positively correlated with abnormal trading
volumes.
The long-term relation between CEO turnovers and operating performance, which is measured
as the ratio of operating income and book value of total assets, shows that a CEO turnover is
typically preceded by deteriorating operating performance and followed by a steady increase in
operating performance. Besides for the total sample, this pattern is particularly evident for the
subsamples of outside successions, forced departures, departures of underperforming CEOs, and
the intersection of forced departures with underperforming CEOs.
The remainder of this paper is structured as follows. Section 2 develops hypotheses regarding
the expected stock-price reaction following dierent types of CEO turnovers. Section 3 deals with
the sample construction and describes the nal sample of CEO turnovers. Section 4 presents the
empirical analysis of this paper. After addressing the setup of the event-study and presenting gen-
eral results related to the impact of CEO turnovers on abnormal stock returns (Subsection 4.1),
we perform a cross-sectional analysis of the results by regressing abnormal returns against selected
CEO-turnover variables (Subsection 4.2) and provide extensive robustness checks (Subsection 4.3).
Subsection 4.4 focuses on the impact of CEO turnovers on the trading volume and Subsection 4.5
investigates the long-term impact of turnovers on the companies operating performance. Section 5
provides a summary of the paper and concludes.
2 Theory, Prior Empirical Results, and Hypotheses
In this section we formulate hypotheses regarding the impact of CEO turnovers on the corre-
sponding stock prices. In particular, we are interested in dierentiating between various charac-
teristics of the turnover, such as (i) the successor origin (inside vs. outside successions), (ii) the
departure type (forced vs. voluntary departures) and, (iii) the relative performance of the company
under the departing CEO. Such hypotheses are meant to reect explicit theories proposed in the
CEO-turnover literature, plausible extensions thereof, and empirical results from previous studies.
2.1 Outside Succession
It is a well established empirical fact that in the majority of CEO turnovers the successor is a
company insider. The corporate-nance literature has proposed a number of plausible reasons for
5
the Boards preference for inside over outside CEOs. These are (i) the company-specic human cap-
ital accumulation theory of Dherment-Ferere and Renneboog (2002), (ii) the quality-measurement
theory, (iii) the tournament theory of Chan (1996).
Dherment-Ferere and Renneboog (2002) argues that inside candidates have two main advantages
over outsiders. First, over the years they have the opportunity to accumulate valuable company-
specic knowledge about processes and technologies. Second, they can exploit an already existing
social network to acquire specic internal information. Thus, the accumulation of company-specic
human capital naturally makes insiders more attractive than outsiders for a CEO position.
Another explanation for the reluctance to appoint outside candidates to the CEO position arises
from the less accurate estimation of their quality. The history of an insider in the company auto-
matically generates a performance track record that can be easily used by the Board of Directors to
assess the insiders quality. Conversely, the information basis to estimate the quality of an outsider
is much smaller, which makes this choice intrinsically more risky.
Finally, Chan (1996) argues that considering outsiders for the CEO position can reduce the
incentives and hence the motivation of lower-level executives. Clearly, if outsiders are included
into the circle of potential successors the chance for insiders to become CEOs diminishes. Thus,
Chan (1996) suggests that the preference for inside successors may represent a natural attempt to
motivate employees by strengthening the link between performance and reward. By considering the
general preference for insiders as CEO successors, we argue that the board of directors will appoint
an outsider as CEO only if his/her quality exceeds by far that of the best available insider. In
this light, we might expect the stock price to react positively once the information about a CEO
turnover with an outside succession is released, which leads us to the formulation of the following
hypothesis.
Hypothesis 1: The announcement of an outside succession yields positive abnormal
returns.
By considering the empirical evidence reported in Table 1, column 6, the above hypothesis seems
to be backed by the majority of previous studies.
2.2 Forced Turnovers
The board of directors has the non-transferable and indefeasible duty of nomination and dis-
missal of the management of the company. Ideally, we would expect the board to act in the best
interest of shareholders when deciding about a CEOs dismissal.
The improved management hypothesis presented by Huson, Malatesta, and Parrino (2004) states
that forced management turnovers induce a higher expected company performance through in-
creased managerial quality. Since the quality of the CEO is not directly observable, company
directors will infer the quality of a CEO from his/her past performance. A CEO will be replaced
6
if the realized performance is suciently low and the expected benet of a turnover exceeds the
expected cost. More precisely, the resulting costs from the turnover have to be more than oset
by the quality dierential separating the new and the incumbent CEO. Following this argument,
investors should interpret the ring decision by the board as a positive signal about the quality of
the appointed CEO and the value of the rm.
Under the scapegoat hypothesis based on Holmstrm (1979), Shavell (1979), and Mirrlees (1976)
rings of CEOs occur even though all managers are assumed to be identical in terms of quality.
The threat of a dismissal merely serves to ensure adequate eort by the incumbent CEO. In equilib-
rium, all CEOs provide the same eort and low performance arises just by chance. In case of poor
performance, the board of directors will re a CEO just to maintain the threat of dismissal thereby
creating the incentive to supply the optimal level of eort. Since in this model the poor performance
leading to the dismissal of a CEO is simply the result of luck and not poor managerial quality or
lack of eort, the red CEO can be viewed as a scapegoat. Also in this case, it is conceivable that
investors will interpret the dismissal of the CEO as a positive signal that testies the responsibility
of the board in providing adequate eort incentives for CEOs.
Since the majority of empirical studies (cf. Table 1, column 9) associates a positive stock-price
reaction with the announcement of a CEO dismissal, thus providing supportive evidence for the
theoretical predictions, we formulate our second hypothesis as follows.
Hypothesis 2: The announcement of a forced CEO turnover yields positive abnormal
returns.
In case of a voluntary retirement, a responsible board of directors should appoint the manager
with the highest quality as CEO successor. However, this does not imply a specic quality dier-
ential of the new CEO over the departing one. Further, voluntary departures due to the age of
the CEO can be anticipated, which should suggest small price reactions. Negative returns could
occur if the departure of the incumbent CEO is associated with a loss of valuable company-specic
human capital or if the voluntary decision to leave the company is motivated by superior (negative)
information of the departing CEO about the future development of the company. The empirical lit-
erature oers a very mixed picture concerning the impact of voluntary CEO turnovers on abnormal
returns. While the majority of papers do not nd signicant abnormal returns (cf. Table 1, column
10), Adams and Mansi (2009) and Hillier and McColgan (2005) report positive and signicant ARs
and (Neumann and Voetmann, 2005) negative and signicant ARs. While in view of the theory
and previous empirical evidence, we expect voluntary retirements to cause smaller stock-price reac-
tions than forced departures, we do not see compelling theoretical arguments to formulate a specic
hypothesis.
2.3 Performance
Previous studies show an inverse relation between the stock performance and the probability of
a CEO turnover (e.g. Warner, Watts, and Wruck, 1988; Weisbach, 1988, among others). In this
7
paper, we investigate the impact of the companys prior performance under the departing CEO
(which can be seen as a proxy for his/her skills) on the abnormal stock returns in the surroundings
of the announcement of the CEO departure. When an underperforming CEO leaves the company,
we expect shareholders to benet from the turnover.
Hypothesis 3: In case of prior underperformance of the stock relative to the market
index, the announcement of a CEO turnover yields positive abnormal returns.
In case of prior overperformance, the turnover announcement is expected to cause negative
abnormal returns because the value of all future projects should be reduced to take into account
the departure of a talented and successful CEO.
Hypothesis 4: In case of prior overperformance of the stock relative to the market index,
the announcement of a CEO turnover yields negative abnormal returns.
2.4 Combinations of Turnover Characteristics
In this paper, we consider the three above variables (successor type, departure type, and com-
panys prior relative stock performance) not only as stand-alone characteristics but also in con-
nection with each other. More precisely, we investigate whether the interaction of those variables
conveys additional valuation-relevant information. While we refrain from discussing all possible
combinations to be constructed by pairs and triples of those variables, some considerations regard-
ing specic intersections are useful.
First, based on the previously mentioned theoretical considerations and the available empirical
ndings, the combination of forced turnovers with outside successions - the two characteristics that
in previous studies are found to deliver the highest abnormal returns - is expected to yield positive
abnormal returns.
Hypothesis 5: The announcement of a forced turnover with an outside successor yields
positive abnormal returns.
Second, we challenge the notion that forced turnovers per se represent positive news to share-
holders on average. We believe that forced turnovers have to be examined in connection with the
skills of the departing CEO (proxied by the companys relative stock performance). In particular,
we expect to observe positive abnormal returns for forced turnovers of underperforming managers
and negative abnormal returns for forced departures of overperforming managers. While the rst
event reects a wise decision by the companys board of directors, the latter does not.
8
Hypothesis 6: The announcement of a forced turnover of an underperforming manager
yields positive abnormal returns.
Hypothesis 7: The announcement of a forced turnover of an overperforming manager
yields negative abnormal returns.
2.5 Trading Volume
Analyzing trading volumes in addition to abnormal returns can likely add an important dimen-
sion to the analysis of CEO turnovers. As noted by Beaver (1968), trading volume of a given security
indicates a lack of consensus among investors regarding the price of that security. Along these lines
Holthausen and Verrecchia (1990) conclude: If one denes information content as the ability of an
information signal to alter investors beliefs, evidence on volume reactions is as relevant for assess-
ing information content as evidence on unexpected price changes. To derive testable hypotheses
related to the trading volume, we follow Kim and Verrecchia (1991b). In their theoretical study
7
on the relation between abnormal returns and abnormal trading volumes after the release of public
information, they argue as follows: Volume reects the sum of dierences in traders reaction; the
change in price measures only the average reaction. As a result, volume is proportional to both the
absolute price change and the measure of dierential precision. The rst part of their conclusion
motivates us to state the following hypothesis:
Hypothesis 8: The higher the absolute abnormal returns caused by the announcement
of a CEO turnover, the higher the abnormal trading volume.
Further, we conjecture that out of the dierent subsamples of CEO turnovers, the one that
conveys the highest degree of surprise will likely relate to forced turnovers of overperforming CEOs.
Hypothesis 9: The announcement of a forced turnover of an overperforming manager
triggers the highest abnormal trading volume.
2.6 Operating Performance
If we assume markets to be ecient, the abnormal returns in the surrounding of a CEO-turnover
announcement date reect investors perceptions about fundamental changes in the value of the
company. From nance 101, we know that the fundamental value of a company results from the
sum of all the expected future free-cash ows discounted by the appropriate risk-adjusted interest
7
Other papers that address in a theoretical framework the trading volume around news releases include Holthausen
and Verrecchia (1990), Kim and Verrecchia (1991a, 1994), and Demski and Feltham (1994).
9
rate. Thus, changes in the value of a company either reect changes in the relevant discount rate
or changes in the expected future cash ows (or both). If we rule out that a CEO turnover has an
impact on the relevant discount rate,
8
the dierent company valuation before and after the CEO-
turnover announcement will solely reect changes in the expected cash ows and thus in the future
operating performance of a company. Based on this line of reasoning, we formulate the following
hypothesis.
Hypothesis 10: The higher the abnormal returns caused by the announcement of a CEO
turnover, the greater the increase in the future operating performance.
3 Data
3.1 Sample Construction
The data investigated in this paper comprises CEO turnovers of companies in the Swiss Perfor-
mance Index (SPI) between 1998 and June 2009. The sample is hand-collected and initially consists
of 347 turnovers at 184 companies.
To cover all CEO turnovers, we apply the following procedure. First, the complete list of CEO
changes is obtained by collecting the annual reports of all companies included in the SPI since
January 1998. Second, to verify the event and obtain the exact CEO-turnover announcement date,
the following sources are screened: (i) ad-hoc disclosures at the SIX Swiss Exchange, (ii) articles in
leading Swiss nancial and business newspapers (in particular, NZZ, Finanz und Wirtschaft,
and Handelszeitung), (iii) company-specic news provided by Bloomberg, (iv) company Internet
sites, and (v) selected Internet news sites.
9
To be included in the nal sample, we require CEO-turnover events to cumulatively satisfy the
following criteria: (i) The date of the announcement, i.e. the rst day investors can trade on the
CEO-turnover information, has to be identiable (this also includes the information on whether
the announcement was made before or after the closing of the market); (ii) The relevant details
regarding the departing and the incoming CEO (age, succession type, and successor origin) have to
be known; (iii) There must be no confounding events, such as earnings or dividend announcements
or mergers and acquisitions, in a three-day time period around the turnover announcement; (iv)
The CEO turnover may not be directly related to the takeover of the company; (v) Furthermore,
there has to be a suciently long stock-price history before the CEO-turnover announcement date
and the stock must be traded at least at 100 days (40%) in the estimation period to guarantee a
reasonably accurate estimation of the market model.
8
This would be the case if the average successor reduces the systematic risk of a company or has an impact on the
market premium. An analysis of betas before and after the event date rules out the rst hypothesis and the latter
appears highly implausible.
9
Internet sites include www.news.ch, www.swissinfo.ch, and http://moneycab.presscab.com.
10
The number of events that had to be excluded due to the criteria (i) to (v) are reported in Table 2.
[Table 2 about here]
3.2 Explanatory Variables
For all CEO-turnover events, we gather detailed information regarding the company, the de-
parting CEO, the new CEO, and the turnover characteristics. The main explanatory variables in
this study are the successor origin (inside vs. outside successions), the departure type (forced vs.
voluntary departures), and the prior performance relative to a broad stock-market index.
In the related literature, the classication of the successor origin is measured by applying two
alternative rules. According to the rst rule, the new CEO is classied as an outsider if the ap-
pointment as CEO occurs on the same date as he/she joined the company; All other successors are
classied as insiders. According to the second rule, the new CEO is considered as an outsider if
he/she has a working history in the relevant company of less than a year (see e.g. Parrino, 1997). In
this paper, successors are classied as insiders or outsiders according to the former rule. However,
applying the latter method does not qualitatively alter the major ndings of the paper. In our
sample, 75 CEO turnovers (36% of the total sample) are classied as outside successions and 133
turnovers (64% of the total sample) are classied as inside successions.
The division into forced and voluntary departures is carried out following the methodology of De-
nis and Denis (1995). Based on the information provided by diverse media reports, such as leading
Swiss nancial and business newspapers, ad-hoc news, and company statements, a CEO turnover
is classied as forced if it is accompanied by an internal conict with the Board. In those cases in
which the turnover cannot be directly assigned to the sample of forced or voluntary turnovers on
the basis of the available data, we apply the following decision scheme: If the departing CEO is not
over 64 years old and the new appointed CEO is an outsider, the CEO turnover is assigned to the
subsample of forced turnovers. By applying this procedure, the sample of forced turnovers consists
of 60 events (29%) and the sample of voluntary turnovers includes 148 events (71%).
The companies relative stock performance is calculated against the Swiss Performance Index
over the same time period that is used to estimate the market model, i.e. over a 250 trading-day
period from day 260 to day 11 prior to the CEO-turnover announcement. Depending on the sign
of the prior relative performance, the event is assigned either to the over- or the underperforming
subsample: 118 turnovers (57%) are preceded by prior underperformance and 90 turnovers (43%)
prior overperformance.
Table 3 provides a breakdown of the nal sample by year and turnover characteristics. While
there seem to be an overall increase in the total number of CEO turnovers over the years, this
development is far from being steady and smooth.
11
Figure 1 is a Venn diagram that splits the sample according to the main CEO-turnover char-
acteristics (together with their intersections): outside successions, forced departures, and turnovers
of underperforming managers. It is worth noting that the percentages of outside successions and
forced departures are, with 36% and 29% of the sample respectively, higher than those reported in
earlier studies. For instance, Adams and Mansi (2009) report for the period between 1990 and 2000
29.4% of outside replacements and 19.6% of forced turnovers; Parrino (1997) classies only 15%
of all turnovers in his sample as outside successions and only 13% as forced departures; Finally,
Clayton, Hartzell, and Rosenberg (2005), examining the impact of CEO turnovers on stock-price
volatility, classify 20.6% as outside successions and 17.4% as forced departures.
[Figure 1 about here]
3.3 Control Variables
Abnormal stock returns induced by a turnover announcement might be inuenced by a number
of variables besides the origin of the new CEO, the performance of the departing CEO, and the
turnover type. For instance, a blue-chip stock might react stronger to a CEO-turnover announce-
ment because investors follow the company news more attentively or the media oer a stronger
coverage. Conversely, small companies might get less attention because they are often owned by
families, weaker media and analysts coverage or are simply too risky for investors to take action
after a turnover announcement. To account for the existence of such eects related to the size of a
company, we include as a control variable in our regressions the logarithm of companys total assets
(SIZE) which we obtain from Datastream.
Other variables that will likely play an important role in determining the magnitude of the
stock-price impact are the age of the departing and the appointed CEO. If the incumbent CEO
is close to retirement age, his/her departure might be anticipated and thus lack a strong surprise
eect. In this case, the age of the departing CEO will have a dampening eect on the news impact.
The appointment of a young CEO which is relatively unknown and potentially less experienced
could also have a material eect on the stock-price reaction. To control for age-related eects, we
include in the cross-sectional regressions the variables AGEDEP and AGEINC, i.e. the logarithm
of age of the departing and incoming CEO, respectively.
12
4 Empirical Analysis
4.1 Abnormal Returns
In order to investigate the impact of CEO-turnover announcements on stock prices, we apply
standard event-study methodology. As usual, the tests rely on the assumption of market eciency,
i.e. that stock prices reects all relevant information and thus quickly incorporate the eect related
to CEO-turnover news. Consequently, we choose a short-term event window to measure the impact
on stock prices. Following Brown and Warner (1985) and McWilliams and Siegel (1997) this event
window should be long enough to capture the impact of the event, but short enough to minimize the
inuence of confounding eects unrelated to the event. Consequently, we choose to employ dierent
event windows ranging from one to ve days. To account for potential information leakage, we let
some event windows start before the CEO-turnover announcement date.
In accordance with the bulk of the literature on short-term event studies, we calculate abnormal
stock returns in the event window by subtracting from realized stock returns the normal returns
obtained by the market model. The parameters of the market model are estimated over a 250
trading-day period ending 11 days before the CEO-turnover announcement date. To make sure
that the ndings of the paper are not driven by inaccurate parameter estimates, the estimation of
the market model is performed both by simple OLS and robust linear regressions (Huber, 1973).
The latter approach is an iteratively re-weighted least squares algorithm (Holland and Welsch,
1977). In particular, in each iteration the weights are calculated by applying the bisquare function
to the residuals from the previous iteration. Since the results of the two estimation procedures do
not lead to qualitatively dierent results, for the sake of brevity, only the robust regression results
are reported in the paper. In addition to measuring the magnitude of mean and median abnormal
returns, it is critical to determine their statistical signicance. For this purpose we employ the
Standardized Cross-Sectional test by Boehmer, Musumeci, and Poulsen (1991) (henceforth simply
denoted by Boehmer test). In addition, we also consider the Wilcoxon Signed Rank test by Wilcoxon
(1945) (henceforth simply denoted by Wilcoxon test) which is a non-parametric test and thus does
not rely on specic assumptions about the distribution of stock returns.
We start the empirical investigation of this paper by measuring abnormal returns (ARs) for
the whole sample and for selected subsamples dened by the key turnover characteristics: successor
origin (insider or outsider), departure type (forced or voluntary), and CEOs prior performance (un-
derperformance or overperformance). Table 4 reports both average and median abnormal returns
together with test statistics obtained by the Boehmer, Musumeci, and Poulsen (1991) test and the
non-parametric Wilcoxon Signed Rank test by Wilcoxon (1945).
10
When considering the results related to the whole sample (Panel A), we observe that for all
event windows considered, the average and median abnormal returns are positive (the only excep-
tion is the median AR two days before the event). In the period [-2 0] both the Boehmer and the
10
While standardized residuals from the market model - and not abnormal returns - are used in the calculation
of the test statistics of Boehmer, Musumeci, and Poulsen (1991), in Table 4 we still report mean abnormal returns
because of their easier interpretation.
13
Wilcoxon test detect signicant ARs at the 10% level with a mean ARs of +0.74% and a median
ARs of +0.32%. The period [-1 1] is signicant at the 5% level for the Boehmer test with a mean
(median) AR of 0.65% (+0.35%). The mean AR of +0.42% on the announcement day is signicant
at the 10% level for the Boehmer test. Overall, CEO turnovers seem to convey good news for
investors on average. This result nds gracal support in the development of the cumulative ARs
displayed in Figure 2 (a).
If we consider the subsample of turnovers with outside successors (cf. Table 4, Panel B), abnor-
mal returns become larger and more signicant. For instance, mean ARs for the periods [-2 0], [-1
0], and [-1 1] are all signicant at the 5% level with values of +1.85%, +1.41% and +1.58%, respec-
tively. By comparing in Figure 2 (b) the ARs of outside successions to the ARs of inside successions
it becomes evident that the former convey positive news about the value of the company whereas
the latter do not.
11
Furthermore, the dierence in the cumulated AR of 1.96% for the two samples
over the window [-3 0] is signicant at the 10% level (see Table 5). The ndings validate Hypothesis
1 of this paper and conform to the theory that an outside candidate for the CEO position must
oer distinguishable better qualities than an inside candidate to be appointed CEO.
According to Hypothesis 2, we expect the stock price to rise following the decision to re a
CEO. Also this hypothesis nds support in the event-study results reported in Table 4, Panel C
and depicted in the ARs evolution in Figure 2 (c). The mean AR for the subsample of forced
turnovers are signicant at the announcement day and for all event windows longer than one day.
We observe that the mean abnormal return is largest for the window [-2 0] with a value of +2.74%.
By comparing in Figure 2 (c) the development of ARs for forced vs. voluntary turnovers one can
visually capture the striking dierence in the pattern of the two lines: increasing in correspondence
of forced turnovers and very close to zero for unforced turnovers. For all tested event windows,
ARs following unforced turnovers are found to be insignicant at all conventional condence levels
(results reported in Table B.1 in the Appendix). Table 5 shows that the dierence in means of
3.12% between forced and voluntary turnover over the event window [-3 0] is signicant at the 5%
level.
The impact of the departure of underperforming CEOs is shown in Table 4, Panel D. Strikingly,
all the mean ARs for the event windows [-2 0], [-1 0], [-1 1], and 0 are statistically signicant at
the 1% level with values as high as +1.94%, +1.56%, +1.62%, and +1.25%, respectively. A very
similar picture arises when focusing on median ARs and considering the Wilcoxon test. Accordingly,
Hypothesis 3 stating that the information of the departure of underperforming CEOs will trigger
signicantly positive abnormal returns nds strong empirical support in our sample. Conversely,
ARs related to departing CEOs with positive prior performance are found to be negative but in-
signicant (results reported in Table B.1 in the Appendix). Furthermore, we observe in Table 5 that
the dierence in means of 2.96% over the window [-3 0] is signicant at the 1% level. Consequently,
also Hypothesis 4 is conrmed in our sample. A direct comparison of the impact of the turnover
of under- and overperforming CEOs is depicted in Figure 2 (d) with a clear upward trend for the
former and a downward trend for the latter.
The results obtained for outside successions and forced turnovers are in line with the ndings
reported by other authors in in the related literature (cf. Table 1). For both subsamples, positive
11
As reported in Table B.1 in the Appendix, ARs of inside successions are very close to zero and insignicant.
14
and signicant abnormal returns could be detected. Conversely, voluntary turnovers and inside
successions induce minor and insignicant stock-price reactions. Not reported in previous work,
the impact of a CEO turnover on stock returns depends on the performance of the departing CEO.
When underpeforming (overperforming) CEOs leave the company, the stock experiences a signi-
cantly positive (negative) price shock.
The results for the samples restricted to one turnover characteristic are displayed in a compact
form in Panel A of Table 7, where the ranking of ARs are based on the return period [-3 0]. We
observe that forced turnovers, underperforming CEOs, and outside successors generate the largest
and most signicant ARs with respective values of +2.94%, +2.00%, and +1.98%. Conversely, the
smallest AR is associated with overperforming CEOs. It amounts to 0.96% but is not statistically
signicant.
At this point, it is natural to extend the current analysis and dene further subsamples by
combining dierent turnover characteristics. The goal of this exercise is to identify certain CEO-
turnover constellations that convey either particularly positive or negative news to shareholders. In
a rst step we calculate ARs for all 12
__
3
2
_
(2 2)
_
possible subsamples (by using a [-3 0] event
window) that can be constructed by pairwise interrelating the three selection criteria (turnover type,
successor origin, and prior CEO performance) and rank them accordingly (cf. Panel B of Table
7). Some results deserve our attention. First, the subsamples obtained by the pairwise intersection
of Outsider, Forced, and Underperformance generate the largest ARs: +6.71% (t-value = 2.68),
+5.73% (t-value = 3.74), and +3.84% (t-value = 2.90) for Outsider & Forced; Forced & Under-
performance; and Outsider & Underperformance, respectively. Even when considering alternative
event windows (cf. Table 4, Panels E and H) those pairs of characteristics generate the strongest
(and most signicant) price reactions. According to Hypothesis 5 of this paper, the combination
Outsider & Forced should generate positive ARs. Since this subsample is associated with the largest
and most signicant ARs, the data support Hypothesis 5. Second, it is of special interest to observe
that forced turnovers rank both 2nd and 12th (last) in this list. In particular, when considering
forced turnovers of underperforming CEOs a mean AR as large as +5.73% is achieved (associated
with a t-value of 3.74). Conversely, when forced turnovers of overperforming CEOs are considered,
ARs become negative! This nding is depicted in Figure 2 (f) and conrmed by alternative event
windows in Table 4, Panels G and H (although the negative ARs associated with forced turnovers
of overperforming CEOs are not statistically signicant at low condence levels). However, the re-
ported results are further supported by the large and at the 1% level signicant dierence of 7.97%
in the mean AR over the window [-3 0] reported in Table 6. This nding suggests that shareholders
assess the quality of the ring decision by the board of directors by considering the quality and
skills of the departing CEO. If the relative stock performance under the departing CEO is positive,
shareholders seem to disfavour the decision and adjust downward their estimates about the value
of the company. The double edged impact of forced turnovers is also apparent in Table 6, where
we observe on the one hand mostly signicant (9 out of 11 comparisons) negative dierences in
means of the other subsamples against the sample of forced turnovers of underperforming managers
(FOR*UND) and, on the other hand exclusively positive dierences against the sample of forced
turnovers of overperforming managers (FOR*OVE), whereof four are signicant at least at the 10%
level. The sole exception of a larger cumulated AR than the one calculated for forced turnovers
15
of underperforming managers is the sample of outside successors combined with a forced turnover.
The just described empirical results seem to support Hypothesis 6 and Hypothesis 7 of this paper.
Finally, it is interesting to note that outside CEOs trigger positive abnormal returns only if the
previous CEO was red (Figure 2 (e)), not if he/she voluntary left the company.
If we dene subsamples based on the interaction of all three turnover characteristics, we obtain
a total of eight subsamples (2
3
). Table 7, Panel C ranks those subsamples by their ARs in the event
window [-3 0]. Not all too surprisingly, the subsample with the most signicant ARs (Boehmer
t-value = 4.29, Wilcoxon z-value = 3.05) is characterized by forced departures of underperforming
CEOs substituted by rm outsiders. The mean (median) ARs over the window [-3 0] of the 14
events falling in this category amounts to +10.61% (+9.41%). The most negative AR (2.82%)
corresponds to the intersection of forced departures with inside successions at overperforming com-
panies. The columns R1, R2, and R3 in Table 7, Panel C evidence an interesting pattern which can
be interpreted as follows. First, the prior performance (R1) is the single most important variable in
deciding whether a turnover represents good or bad news. Turnovers at underperforming compa-
nies are always associated with positive ARs, while turnovers at overperforming companies trigger
negative ARs. Second, column R2 impressively shows the amplifying eect of forced turnovers in
combination with under-, and overperforming companies. Third, in column R3 subsamples with
outside successors rank above the corresponding subsamples with inside successors. Thus, while
outside successors are ceteris paribus viewed more positively than inside successors, the other vari-
ables (departure type and prior performance) seem to be more relevant in judging the value of a
CEO-turnover event.
4.2 Cross-Sectional Regressions
In this subsection we evaluate the cross-sectional information content of CEO turnovers by
regressing ARs against a set of explanatory variables. More precisely, we regress ARs in the event
window [-2 0] on an outside-succession dummy (OUT) a forced-turnover dummy (FOR), prior
performance under the departing CEO (OVE)
12
, size of the company measured as the logarithm of
total assets (SIZE), the age of the departing CEO (AGEDEP), as well as the age of the incoming
CEO (AGEINC). The regressions results are reported in Table 8. Regressions 1 to 3 are univariate
regressions of ARs against a single turnover characteristic and thus simply replicate some of the
results obtained by analyzing ARs of selected subsamples. For instance, the sum of the constant,
12
The variable PERF denotes both a continuous variable and a dummy variable, taking on the value of one if the
company experienced prior relative overperformance and zero otherwise.
16
0.0011, and the coecient of the variable OUT, 0.0173, in Table 8 is equivalent (except for rounding
errors) to the mean [0 2]-AR for the subsample of turnovers with outside successors, 0.0185, in Table
4, Panel B. Nonetheless, performing cross-sectional regressions oers two decisive advantages: First,
it allows to measure the impact of continuous variables (and not only dummy variables); Second,
it allows to combine the eect of multiple variables on ARs and to isolate the impact of each them.
Not surprisingly, the coecients related to outside successions (OUT), forced departure (FOR), and
overperformance (OVE) are all found to be signicant in the univariate regressions. The size of
the company has a slightly negative but insignicant eect on ARs. The coecient related to the
age of the departing manager (AGEDEP) is negative and weakly signicant and the one related
to the age of the incoming CEO (AGEINC) is positive but not signicant. Importantly, in the
multivariate regression with all six explanatory variables (Table 8, Regression 7) the coecients
and signicances of the variables OUT, FOR, and PERF experience remarkably small changes. In
the multivariate regression, almost six percent of the cross-sectional variance can be traced back to
the six explanatory variables.
In a next step, we investigate whether these results are consistent over dierent return periods.
For that purpose, we regress in Table 9 ARs of six event windows against all variables found to be
signicant in Regression 7 of Table 8. By looking at the results, it stands out that the signs of the
coecients remain unchanged and the signicances are reasonably consistent across the performed
regressions. The variables OUT, FOR, and OVE are always signicant, except for OUT in the
periods [-1 1] and [-2 1]. The coecient of SIZE is always negative but in solely two cases ([-3 1]
and [-1 1]) a weak signicance at the 10% level is detected. The results from Table 9 reinforce our
view that the successor origin, the turnover type, and the prior CEO performances are key variables
in explaining cross-sectional variations in abnormal returns and determining whether a turnover is
good news or bad news to shareholders.
Motivated by the previous results about the impact of forced turnovers in dependence of the
CEOs prior performance, we add an additional dummy variable, FOROVE, to capture this
interaction. As can be seen in Panel A of Table 10, for both event windows considered FOROVE
is signicant at the 1% level and the adj. R
2
rise to 0.1363 for the [-3 0] event window and 0.0959
for the [-2 0] event window. The results reported in Panel B of Table 10 are obtained by dening
OVE as the realized relative performance during the estimation period (and avoid to transform it
into a dummy variable). Also under this specication FOROVE remains signicantly negative at
the 1% level and the adj. R
2
increases to 0.2184 for the period [-3 0] and 0.2114 for the period [-2
0].
17
It is of particular interest to examine the impact on shareholder value of those turnovers in
which the CEOs is forced to leave the company by a deliberate decision of the board of directors.
Table 11 presents the results of cross-sectional regressions on the subsample of forced turnovers.
In all regressions, the coecients of the variables OUT and OVE have the expected sign and are
highly signicant. In particular, knowing that the performance of a red CEO was positive in
the year preceding the dismissal induces an average drop in shareholder value of approximately
0.8%. The results of Table 11 emphasize once more the importance of the prior performance of
the departing CEO in assesing the news of a ring. Conversely, they challenge the oversimplifying
view that the dismissal of a CEO represents per se good news. Similarly, the results suggest that
shareholders systematically mistrust the board of directors to act in their best interest when they
re an outperforming CEO.
4.3 Robustness
In this subsection we intend to check the robustness of our results with respect to (i) econometric
test specications and (ii) time subperiods. To further ensure the robustness of the ndings, we re-
examine the event-study results by implementing, in addition to the already employed Standardized
Cross-Sectional test by Boehmer, Musumeci, and Poulsen (1991) and Wilcoxon Signed Rank test
by Wilcoxon (1945), an additional battery of parametric and non-parametric event-study tests.
The parametric methods include the Traditional test by Brown and Warner (1980), the Portfolio
test by Brown and Warner (1980), a test that accounts for rst-order autocorrelation in abnormal
stock returns by Ruback (1982), and the Standardized-Residual test by Patell (1976). The non-
parametric test statistics have the advantage of avoiding to assume a specic distribution for the
abnormal returns. The non-parametric test employed in this study include a Bootstrap test, the
Corrado Rank test by Corrado (1989), and the Generalized Rank test by Kolari and Pynnonen
(2008). Table 12 provide an overview on all test used in this paper and Table 13 illustrates the
computation of the corresponding test statistics.
One major worry in event studies concerns the risk of detecting spurious abnormal returns. In
econometrics, the risk of erroneously rejecting the null hypothesis is called error of type I. The
probability of incurring into this error should be determined by the condence level, . However,
misspecied test statistics may lead to higher or lower rejection rates of true null hypotheses. To shed
light on this issue and gain insights about the reliability of the statistical inferences in this paper,
we perform empirical experiments that evaluate the performance of three very dierent event-study
18
tests: the Bootstrap method, the Standardized Cross-Sectional test by Boehmer, Musumeci, and
Poulsen (1991), and the Wilcoxon Signed Rank test by Wilcoxon (1945). The historical-simulation
experiment uses the daily stock-price histories of 160 SPI companies in the time period from January
1990 to June 2009. It consists of two steps. In the rst one, we generate 250 random samples
of N pseudo or fake CEO turnovers, each one representing a possible empirical sample of CEO
turnovers. Clearly, since the turnovers did not actually take place, we know that the null hypothesis
of zero abnormal returns is indeed true. Consequently, we expect the event-study tests to reject
the null hypothesis with frequency . Each of the 250 samples is constructed as follows: First, we
randomly draw with replacement N (N {10; 20; 50; 100; 200}) securities from the overall sample
of 160 securities. Second, each sampled security gets a randomly drawn pseudo-event day which also
denes both the estimation and event windows. In particular, in accordance with the event-study
design employed in the paper, the days 260 till day 11 refer to the estimation window with day
zero referring to the event date.
13
In a second step, we conduct for each of the 250 pseudo-turnover
samples a complete event-study test, i.e. we (i) estimate the market model by OLS, (ii) calculate
abnormal returns in the event window, and (iii) determine the rejection of the null hypothesis based
on a particular test and condence level, . The rejection rates reported in Table 16 represent the
average number of samples for which abnormal returns are found to be signicantly dierent from
zero divided by the sample size (N). Since for all three models the test statistics reject the null
hypothesis at approximately the signicance levels, the Type I error rate is acceptable and the tests
do not seem prone to detect spurious abnormal returns. Interestingly, the rather involved Bootstrap
event-study test does not seem to deliver better results than the other two test statistics.
To asses the power of the tests, i.e. the capability of rejecting falls null hypotheses, we repeat
the above simulation experiment by articially introducing in the event window of each pseudo
CEO turnover abnormal returns in the range of 3% to +3%. In Figure 3 the empirical rejection
rates are plotted against the level of abnormal returns used to contaminate the stock-price returns
in the event window. As expected, the larger the absolute value of the contamination, the higher
the rejection rates. For suciently large abnormal returns the probability of rejecting the null of
zero abnormal returns reaches 100%. Figures 3 (a)-(d) dier with respect to the size of the CEO-
turnover sample and highlight the fact that the sample size is critical for obtaining a high test
power. By comparing the shapes of the rejection curves, the bootstrap test appears to be slightly
outperformed by the other two test statistics.
13
To estimate the market model for the event study, we require the companies to be a member of the Swiss
Performance Index during all 261 days prior to the randomly drawn event date. If this condition is not fullled a
new pseudo event day is randomly drawn for this security. This cycle continues until a complete history of security
returns is generated.
19
It is now interesting to investigate the robustness of the basic results on CEO-turnover subsam-
ples by employing all event-study tests previously introduced. Table 14 reports t-values associated
with the dierent tests, event windows, and CEO-turnover subsamples. It is reassuring to observe
that the signicant results obtained earlier for outside successions, forced departures, and prior
underperformance are strongly supported by the additional test methods. Furthermore, we obtain
signicant negative ARs for the subsample of overperforming companies for ve out of six parametric
test methods (Table 14, Panel E). Similar conclusions can be drawn for the subsample constructed
by combining outside successions with forced and voluntary departures as well as forced departures
with the performance of the departing CEO. In particular, we emphasize that the nding of signif-
icant negative abnormal returns for forced turnovers at overperforming companies (Hypothesis 7)
and signicant positive returns at underperforming companies (Hypothesis 6) is robust with respect
to alternative test specications.
Finally, for testing robustness over time, we divide the sample into two subperiods of equal
length (1998-2003 and 2004-2009) and perform cross-sectional regressions on both set of abnormal
returns. It is reassuring to observe that regardless of the time subsamples and event windows all
the coecients in Table 15 have the expected sign. Having said that, the results related to the sub-
period 1998-2003 show a higher number of signicant coecients and are characterized by higher
R
2
and thus a better t. However, for the event window [-3 0], even in the latter period the dummy
variables FOR and FOROVE are statistically signicant at the 5% condence level. Therefore,
the dependency of the announcement impact of forced turnovers on prior performance is a feature
that is present in both subperiods.
4.4 Trading Volume
As mentioned earlier in the paper, trading volume could convey even more information about
the relevance of a CEO turnover to investors than abnormal returns. For this reason, we conduct
another event-study based on the stock trading volume (TV ), i.e. the number of traded shares
(data item Turnover by Volume in Datastream). To provide an immediate interpretation of the
impact of CEO-turnover news on the trading volume, we rst consider the following standardized
measure of abnormal trading volume:
STV
A
it
=
TV
it
TV
N
it
1, (1)
20
where TV
it
is the realized trading volume of company i at time t and TV
N
i
is the normal, i.e.
the expected, trading volume which is measured in accordance with a constant-mean model as
the average trading volume between day 60 and day 11: TV
N
i
= 1/50

11
t=60
TV
it
. STV is
particularly easy to interpret because it simply represents the percentage increase in trading volume
relative to a 50-day benchmark period before the event date.
Figure 4 and Figure 5 depict the daily average and cumulative average standardized abnormal
trading volumes. All graphs show a distinct increase of the average STV
A
on the day of the
CEO turnover announcement and the following one. In Figure 4 (a), we see that for the total
sample the average trading volume on the event day is +129.97% larger than the average trading
volume in the estimation period. By examining Figures 4 (b)-(f), it is apparent that the changes in
trading volumes strongly depend on the characteristics of the turnover event. For instance, forced
departures (graph (c)) have a much larger impact on trading volume than voluntary departures
(+196.37% vs. +103.04%). Surprisingly, the largest average STV
A
is caused by forced turnovers
at underperforming companies (+259.64%) and not - as conjectured in Hypothesis 9 of this paper
- by forced turnovers of overperforming CEOs (+78.87%).
By following the previous literature on trading-volumes in correspondence of news releases
(Ajinkya and Jain, 1989; Cready and Ramanan, 1991; Campbell and Wasley, 1996), we perform
an event study based on a constant-mean model applied to the logarithm of the trading volume
(LTV = ln(TV )). As mentioned in the above articles, working with log-transformed trading vol-
umes is preferable because its empirical distribution is closer to the normal and allows for more
accurate statistical inferences.
14
Similar to abnormal stock returns, abnormal trading volumes of
company i on day t, LTV
A
it
, must be calculated as the dierence between realized and normal LTV .
In accordance with the constant-mean model, the normal daily LTV in the event window is cal-
culated as the average LTV from day 60 to day 11 prior to the turnover announcement date:
LTV
N
i
= 1/50
11
t=60
LTV
it
.
15
Finally, abnormal LTV for each event are obtained by subtracting
normal LTV s from the realized ones: LTV
A
it
= LTV
it
LTV
N
it
.
Table 17 presents the test statistics of the event study. In the total sample (Panel A) the increase
in trading volume before the CEO-turnover announcement indicates the existence of information
leakage. Signicant abnormal trading volumes are detected for the periods [-2 2], [1 3], as well
as day 0 and day +1. The trading-volume eect is particularly pronounced for the subsamples of
14
As an alternative trading-volume metrics, we also employ the relative trading volume (RTV ), dened as the ratio
of the logarithm of traded shares and shares outstanding (data item Number of Shares in Issue in Datastream). In
a formula: RTV = ln((100 V/NOSH) +c), where TV denotes the number of traded shares, NOSH is the number
of outstanding shares, and c = 0.000255 denotes a constant which precludes taking a logarithm of zero when no
shares are traded (Cready and Ramanan, 1991). In general, the results obtained with this alternative methodology
do not materially dier from those described and reported in the paper.
15
Days in which no trading was reported are not considered when calculating this average.
21
forced departures in Table 17, Panel C (similar to Cools and van Praag (2007)), outside successors
with forced departures (Panel E), and forced turnovers of underperforming managers (Panel H).
In Table B.2 of the Appendix we show that an increase in trading volume is also observed for
inside successions, voluntary departures, and departures of overperforming managers. The results
of those subsamples show how trading volume can capture the trading relevance of news in cases in
which we do not observe signicant abnormal returns (cf. Table B.1 in the Appendix).
By regressing in Table 18 the abnormal trading volume on turnover characteristics only the
departure type (forced vs. voluntary) is found to be signicant.
To address Hypothesis 8 of this paper, we regress absolute abnormal returns against abnormal
trading volumes, LTV
A
. For all event windows considered, we nd a highly signicant slope coef-
cients (cf. Table 19). The strongest relation refers to the event day with a t-value of 6.4273 and
an adj. R
2
of 0.1589. These results support the hypothesis that belief updates by investors, as
measured by absolute price changes, generate trading.
4.5 Operating Performance
To round o the analysis on CEO turnovers we test whether they have a longer-term impact
on the operating performance of a company. This longer-term eect is measured by the operating
return on asset (OROA). We calculate the operating return on total assets in period t, OROA
t
, as
the ratio of operating income (Datastream item 137) and book value of total assets (Datastream
item 392). We do not consider the return on assets in the nancial year of the CEO turnover because
it is aected by both the old and the new CEO.
16
Therefore, OROA
0
indicates the operating return
on assets of the nancial year ending before the CEO turnover and OROA
+1
denotes the return
corresponding to the rst full-time year under the lead of the new CEO. We follow the methodology
proposed by Barber and Lyon (1996) and calculate normal, or expected, operating performance,
16
It is often argued that the departing CEO has incentives to articially increase the reported earnings in a last
attempt to keep his/her position and that the newly appointed CEO has incentives to reduce reported earnings to
credit poor performance to the predecessors and augments the chance that subsequent good performance will be
attributed to him/her. The second mentioned discretionary behavior that a new CEO has the incentive to decrease
earnings in the year of his appointment is known as taking a so-called earnings bath (Elliott and Shaw, 1988;
DeAngelo, 1988; Murphy and Zimmerman, 1993; Pourciau, 1993; Wells, 2002).
22
OROA
N
it
, as the sum of the lagged companys OROA, OROA
i,t1
, and the change in the median
industry OROA from year t 1 to year t, OROA
I
it
(without considering company i). Thus, the
abnormal operating performance, OROA
A
it
, accounts for industry eects and is calculated as
OROA
A
it
= OROA
it
OROA
N
it
, with (2)
OROA
N
it
= OROA
i,t1
+ OROA
I
it
. (3)
The sample used in this analysis (N = 136) is smaller than the one used for the event studies on
abnormal returns and trading volumes (N = 208) because we need three (two) years of accounting
data before (after) the nancial year of the CEO turnover to perform the analysis and the lack of
data for some companies restricts our sample. Again, year 0 and year +1 refer to the last full year
under the departing CEO and the rst full year under the new CEO, respectively.
Median OROAs for an industry are calculated starting from a sample of 246 companies in the
SPI index (both present and past constituencies of the index). First, we consider all companies
in the same Sector 4 industry code of Datastream reporting in the same calendar year as the
company of interest. If less than three companies with available data belong to the same Sector 4,
we consider all companies which belong to the larger Sector 3 industry code of Datastream. If
even with this broader industry denition we cannot nd at least three companies with available
OROAs, we employ the median change over all companies which report OROAs for the years t 1
and t.
Figure 6 (a) depicts the abnormal OROAs in the nancial years around the CEO-turnover an-
nouncement date. The inverted tent shape of the graph indicates that CEO turnovers are generally
preceded by deteriorating operating performance and followed by a steady increase in protability.
Hence, CEO turnovers seem to have an overall positive impact on the real operating performance
of a company. This pattern is more pronounced than in the earlier studies conducted by Denis and
Denis (1995), Dedman and Lin (2002), and Huson, Malatesta, and Parrino (2004).
17
The graphs in
Figure 6 tend to mirror the results of the analysis on abnormal stock returns: The subsamples with
the more pronounced changes in OROA
A
coincide with the subsamples with the largest abnormal
stock returns. Particularly large changes in abnormal operating performance are associated with
outside successions (Figure (b)), forced departures (Figure (c)), prior underperformance (Figure
(d)), outside successions in connection with forced departures (Figure (e)), and the intersection
of forced turnovers with prior underperformance (Figure (f)). On the contrary, the subsamples of
voluntary turnovers (Figure (c)), prior overperformance (Figure (d)), outside successions in com-
bination with voluntary turnovers (Figure (e)), and forced turnovers with prior overperformance
(Figure (f)) do not trigger large changes of the abnormal operating performance.
17
Other studies (Dezso, 2007; Fisman, Khurana, and Rhodes-Kropf, 2005; Hillier and McColgan, 2005; Khurana,
2001) that examine the impact of CEO turnovers on companies operating performance arrive to similar conclusions.
23
Table 20 provides formal econometric tests about the signicances of the abnormal OROA over
specied periods.
18
Panel A of this table conrms that OROA
A
signicantly worsen in the run-up
to the CEO turnover. In the year following the CEO change, OROA
A
s tend to rise but are not
statistically dierent from zero. Only over a two-year period following the turnover, the positive
impact on the operating performance kicks in and leads to high levels of statistical signicance.
Surprisingly, this operating-performance pattern holds for the majority of subsamples yielding de-
creasing OROA
A
s prior the CEO-turnover year and increasing OROA
A
s after the turnover. When
considering median changes, the subsamples in which CEO turnovers have a particularly strong and
signicant impact on OROAs are those related to outside successors (Panel B), forced departures
(Panel D), prior stock underperformance (Panel F), and the intersection of forced departures with
underperformance (Panel K). For example, the subsample of forced departures yield a mean change
in OROA
A
of +2.92% (t-value = 2.4106) and a median change in OROA
A
of +1.98% (z-value
= 2.6375). In the subsample of forced departures with underperforming companies we measure a
mean change of +3.56% (t-value = 2.1730) and a median change of +2.61% (z-value = 2.2824).
To test whether dierent CEO-turnover characteristics have a signicantly dierent impact on
the operating performance, we regress cross-sectional OROA
A
changes over the time period [1 2]
on a set of explanatory variables. While most of the coecients have the same sign as in the
cross-sectional regressions based on abnormal returns (cf. Table 8), only the coecients related to
the outsiders dummy (OUT) and the companys relative overperformance (OVE) are statistically
dierent from zero at the 10% condence level.
19
Finally, we are interested in nding out whether the stock price reaction in the surrounding of the
announcement date correlates with the future development of the companys operating performance
(Hypothesis 10). For this purpose, we regress using robust linear regressions
20
OROA
A
changes over
the period [0 2] (nancial years) on the ARs from the period [-3 0] (trading days). Table 22, Panel
A reports for the total sample a signicant relation between ARs and OROA
A
changes with a
coecient of 0.1112 (t-value = 2.4758). This positive relation also holds for most subsamples (cf.
18
The same analysis was repeated by employing OROA changes as a measure of abnormal operating performance,
which implies that the normal OROA for the next year is proxied by the OROA from the previous year, hence we
calculate OROA
A
it
= OROA
it
OROA
i,t1
. This alternative model specication did not qualitatively alter the
results reported in Table 20.
19
When performing the same cross-sectional regressions based on a [0 2] event window, the signicances of OVE
and OUT vanish and SIZE becomes weakly signicant. The latter result could reect the higher degree of sluggishness
in the restructuring of larger companies.
20
For the robust regression we apply the bisquare weighting function as before in Section 4.1 for estimating the
market model for the expected security returns.
24
Table 22, Panel B). A particularly strong connection between ARs and OROAs can be observed
for the subsample of outside successors ( = 0.3991, t-value = 3.88). Overall, it is reassuring (from
the view point of market eciency) that the information content of CEO turnovers appears to be
reected both in the short-term stock-market reaction and in the long-term operating performance
of the company.
5 Summary and Conclusions
In this paper we investigate the information content of CEO turnovers in the Swiss stock mar-
ket by analyzing abnormal stock returns and trading volumes around the turnover announcement
date. The sample consists of 208 CEO turnovers between January 1998 and June 2009 in compa-
nies belonging to the Swiss Performance Index. The results provide strong evidence that selected
characteristics of CEO turnovers are determinant in explaining the stock-market reaction.
The relative stock-price performance under the departing manager is found to be the single
most important variable in assessing the shareholder-value content of a CEO-turnover. In line with
economic intuition, the departure of outperforming (underperforming) managers represents bad
(good) news. Outside successions and forced turnovers yield, in accordance with previous studies,
signicant positive abnormal returns. Most interestingly, while forced turnovers of managers with
poor prior performance trigger positive and signicant abnormal returns, forced turnovers of out-
performing managers are associated with negative abnormal returns. Therefore, a forced turnover
does not - as often argued in the literature - per se constitute a positive signal to shareholders.
On the contrary, shareholders seem to critically assess the quality of the boards ring decision by
considering the skills of the departing manager as proxied by the prior relative stock performance.
When an outperforming CEO is dismissed or forced to leave, shareholders seem to disesteem the
boards decision. This nding is conrmed in multivariate cross-sectional regressions and is robust
to time subperiods and alternative test statistics.
Trading volume is found to consistently increase for all types of CEO-turnovers. However, the
size of the impact crucially depends on the characteristics of the turnover event, with forced depar-
tures causing the largest eect on trading-volume (+196.37%). Furthermore, in line with theoretical
models on news releases (e.g. Kim and Verrecchia, 1991b), we observe a statistically signicant re-
lation between absolute abnormal returns and abnormal trading volumes.
By examining the long-term relation of CEO-turnovers and companies operating performance,
we report a signicant deterioration of the operating performance in the forefront of the turnover
and a signicant improvement afterward. The relation between abnormal stock returns around
the announcement day and subsequent changes in operating performance is positive and statisti-
cally signicant. This result indicates that the short-term investors reaction to a CEO-turnover
announcement reects on average the new long-term operating prospects of that company.
25
References
Adams, J. C., and S. A. Mansi (2009): CEO turnover and bondholder wealth, Journal of
Banking and Finance, 33, 522533.
Ajinkya, B. B., and P. C. Jain (1989): The behavior of daily stock market trading volume,
Journal of Accounting and Economics, 11, 331359.
Barber, B. M., and J. D. Lyon (1996): Detecting abnormal operating performance: The
empirical power and specication of test statistics, Journal of Financial Economics, 41, 359
399.
Beatty, R. P., and E. J. Zajac (1987): CEO change and rm performance in large corpora-
tions: Succession eects and manager eects, Strategic Management Journal, 8(4), 305317.
Beaver, W. H. (1968): The information content of annual earnings announcements, Journal of
Accounting Research, 6, 6792.
Boehmer, E., J. Musumeci, and A. B. Poulsen (1991): Event-study methodology under
conditions of event-induced variance, Journal of Financial Economics, 30, 253272.
Bonnier, K. A., and R. F. Bruner (1989): An analysis of stock price reaction to management
change in distressed rms, Journal of Accounting and Economics, 11, 95106.
Borokhovich, K., R. Parrino, and T. Trapani (1996): Outside directors and CEO selec-
tion, Journal of Financial and Quantitative Analysis, 31, 337355.
Brown, S., and J. Warner (1980): Measuring security price performance, Journal of Financial
Economics, 8, 205258.
(1985): Using daily stock returns: The case of event studies, Journal of Financial
Economics, 14, 331.
Campbell, C. J., and C. E. Wasley (1996): Measuring abnormal daily trading volume for
samples of NYSE/ASE and NASDAQ securities using parametric and nonparametric test statis-
tics, Review of Quantitative Finance and Accounting, 6, 309326.
Chan, W. (1996): External recruitment versus internal promotion, Journal of Labor Economics,
14, 555570.
Clayton, M. C., J. C. Hartzell, and J. Rosenberg (2005): The impact of CEO turnover
on equity volatility, Journal of Business, 78, 17791808.
Cools, K., and C. M. van Praag (2007): The value relevance of top executive departures:
Evidence from the Netherlands, Journal of Corporate Finance, 13, 721742.
26
Corrado, C. J. (1989): A nonparametric test for abnormal security price performance in event
studies, Journal of Financial Economics, 23, 385395.
Coughlan, A., and R. Schmidt (1985): Executive compensation, management turnover, and
rm performance: An empirical investigation, Journal of Accounting and Economics, 7, 4366.
Coxbill, A. L., L. W. Sanning, and S. Shaffer (2009): Market reaction to the announcement
of a male-to-female CEO turnover, CAMA Working Paper Series.
Cready, W. M., and R. Ramanan (1991): The power of tests employing log-transformed
volume in detecting abnormal trading, Journal of Accounting and Economics, 14, 203214.
Dahya, J., A. A. Lonie, and D. M. Power (1998): Ownership structure, rm performance
and top executive change: An analysis of UK rms, Journal of Business Finance & Accounting,
25, 10891118.
Dahya, J., and J. J. McConnell (2005): Outside directors and corporate board decisions,
Journal of Corporate Finance, 11, 3760.
Danisevska, P., A. de Jong, and M. Rosellon (2003): Disciplining managers: Evidence
from two-tier boards, Working Paper.
DeAngelo, L. E. (1988): Managerial competition, information costs, and corporate governance:
The use of accounting performance measures in proxy contests, Journal of Accounting and
Economics, 10, 336.
Dedman, E., and S.-J. Lin (2002): Shareholder wealth eects of CEO departures: Evidence
from the UK, Journal of Corporate Finance, 8, 81104.
Demski, J. S., and G. A. Feltham (1994): Market response to nancial reports, Journal of
Accounting and Economics, 17, 340.
Denis, D. J., and D. K. Denis (1995): Performance changes following top management dis-
missals, The Journal of Finance, 50, 10291057.
Dezso, C. L. (2007): Entrenchment and changes in performance following CEO turnover, Work-
ing Paper.
Dherment-Ferere, I., and L. Renneboog (2002): Share price reactions to CEO resignations
and large shareholder monitoring in listed French companies, In: McCahery, J., et al. (Eds.),
Convergence and Diversity of Corporate Governance Regimes and Capital Markets. Oxford Uni-
versity Press, pp. 297324.
Elliott, J. A., and W. H. Shaw (1988): Write-Os as accounting procedures to manage
perceptions, Journal of Accounting Research, 26, 91119.
27
Faccio, M., and L. Lang (2002): The ultimate ownership of western european corporations,
Journal of Financial Economics, 65, 365395.
Fisman, R., R. Khurana, and M. Rhodes-Kropf (2005): Governance and CEO turnover:
Do something or do the right thing?, Working Paper.
Furtado, E. P., and M. S. Rozeff (1987): The wealth eects of company initiated manage-
ment changes, Journal of Financial Economics, 18, 147160.
Hillier, D., and P. McColgan (2005): Firm performance, entrenchment and CEO succession
in family-managed rms, Working Paper.
Holland, P. W., and R. E. Welsch (1977): Robust regression using iteratively reweighted
leastsquares, Communications in Statistics - Theory and Methods, A6, 813827.
Holmstrm, B. (1979): Moral hazard and observability, The Bel l Journal of Economics, 10(1),
7491.
Holthausen, R. W., and R. E. Verrecchia (1990): The Eect of informedness and consensus
on price and volume behavior, The Accounting Review, 65(1), 191208.
Huber, P. J. (1973): Robust regression: Asymptotics, conjectures, and monte carlo, Annals of
Statistics, 1(5), 799821.
Huson, M. R., P. H. Malatesta, and R. Parrino (2004): Managerial succession and rm
performance, Journal of Financial Economics, 74, 237275.
Huson, M. R., R. Parrino, and L. T. Starks (2001): Internal monitoring mechanisms and
CEO turnover: A long-term perspective, Journal of Finance, 56, 22652297.
Johnson, W. B., R. P. Magee, N. J. Nagarajan, and H. A. Newman (1985): An analysis
of the stock price reaction to sudden executive deaths: Implications for the managerial labor
market, Journal of Accounting and Economics, 7, 151174.
Kang, J. K., and A. Shivdasani (1996): Does the Japanese governance system enhance share-
holder wealth? Evidence from the stock-price eects of top management turnover, The Review
of Financial Studies, 9, 10611095.
Khanna, N., and A. B. Poulsen (1995): Managers of nancially distressed rms: Villains or
scapegoats?, The Journal of Finance, 50, 919940.
Khurana, R. (2001): The performance consequences of CEO turnover, Working Paper, MIT
and Harvard University.
Kim, O., and R. E. Verrecchia (1991a): Market reaction to anticipated announcements,
Journal Financial Economics, 30, 273309.
28
(1991b): Trading volume and price reactions to public announcements, Journal of
Accounting Research, 29(2), 302321.
(1994): Market liquidity and volume around earnings announcements, Journal of Ac-
counting and Economics, 17, 4167.
Kolari, J., and S. Pynnonen (2008): Generalized rank test for testing cumulative abnormal
returns in event studies, Working Paper.
LaPorta, R., F. L. de Silanes, and A. Shleifer (1999): Corporate ownership around the
world, Journal of Finance, 54(2), 471517.
Lee, P., and E. H. James (2007): She-E-Os: Gender eects and stock price reactions to the
announcements of top executive appointments, Strategic Management Journal, 28(3), 227241.
Mahajan, A., and S. Lummer (1993): Shareholder wealth eects of management changes,
Journal of Business Finance and Accounting, 20(3), 393410.
McWilliams, A., and D. Siegel (1997): Event studies in management research: Theoretical
and empirical issues, The Academy of Management Journal, 40, 626657.
Mirrlees, J. A. (1976): The optimal structure of incentives and authority within an organiza-
tion, The Bel l Journal of Economics, 7(1), 105131.
Murphy, K. J., and J. L. Zimmerman (1993): Financial performance surrounding CEO
turnover, Journal of Accounting and Economics, 16, 273315.
Neumann, R., and T. Voetmann (2005): Top executive turnovers: Separating decision and
control rights, Managerial and Decision Economics, 26, 2537.
Park, S., and M. S. Rozeff (1994): The role of outside shareholders, outside boards, and
management entrenchment in CEO selection, Working Paper.
Parrino, R. (1997): CEO turnover and outside succession: A cross-sectional analysis, Journal
of Financial Economics, 46, 165197.
Patell, J. M. (1976): Corporate forecasts of earnings per share and stock price behavior: Em-
pirical tests, Journal of Accounting Research, 14, 246276.
Penman, S. (1982): Insider trading and the dissemination of rms forecast information, The
Journal of Business, 55, 479503.
Pourciau, S. (1993): Earnings management and nonroutine executive changes, Journal of Ac-
counting and Economics, 16, 317336.
Reinganum, M. R. (1985): The eect of executive succession on stockholder wealth, Adminis-
trative Science Quarterly, 30, 4660.
29
Ruback, R. (1982): The eect of discretionary price control decisions on equity values, Journal
of Financial Economics, 10, 83106.
Setiawan, D. (2008): An analysis of market reaction to CEO turnover announcement: The case
in indonesia, International Business & Economics Research Journal, 7, 119128.
Shavell, S. (1979): Risk sharing and incentives in the principal and agent relationship, Journal
of Business, 10(1), 5573.
Shen, W., and A. A. Cannella (2003): Will succession planning increase shareholder wealth?
Evidence from investor reactions to relay CEO successions, Strategic Management Journal, 24(2),
191198.
Suchard, J., M. Singh, and R. Barr (2001): The market eects of CEO turnover in Australian
rms, Pacic-Basin Finance Journal, 9, 127.
Warner, J. B., R. L. Watts, and K. H. Wruck (1988): Stock prices and top management
changes, Journal of Financial Economics, 20, 461492.
Weisbach, M. (1988): Outside directors and CEO turnover, Journal of Financial Economics,
20, 431460.
Wells, P. (2002): Earnings management surrounding CEO changes, Accounting and Finance,
42(2), 169193.
Wilcoxon, F. (1945): Individual comparisons by ranking methods, Biometrics Bul letin, 1(6),
8083.
Worrell, D. L., W. N. Davidson, P. Chandy, and S. L. Garrison (1986): Manage-
ment turnover through deaths of key executives: Eects on investor wealth, The Academy of
Management Journal, 29, 674694.
Worrell, D. L., W. N. Davidson, and J. L. Glascock (1993): Stockholder reactions to
departures and appointments of key executives attributable to rings, The Academy of Manage-
ment Journal, 36, 387401.
30
A Bootstrap Event-Study Test
The bootstrap event-study test is implemented in three steps. First, we calculate an ordinary
t-value for the sample of abnormal returns on day t: t-value
t
= AR
t
/(AR
t
)
N, where AR
t
is the
mean abnormal return for day t and (AR
t
) is the cross-sectional standard deviation of abnormal
returns. Second, we generate a distribution of t-values under the null-hypothesis, i.e. we re-sample
10, 000 times from the initial sample of abnormal returns by randomly drawing for each event one
abnormal return from the estimation window of 250 days. For each random sample we calculate the
mean and the standard deviation of the abnormal returns and subsequently the t-value
r
, where r
stands for random. Third, we calculate the p-value
t
, depending on our hypothesis, as the percentage
of t-value
r
above or below t-value
t
from the initial sample, i.e. we calculate either
p-value
t
= (#t-value
r
t-value
t
)/10, 000
or
p-value
t
= (#t-value
r
t-value
t
)/10, 000.
Finally, we convert the obtained p-value to the corresponding t-value of a t-distribution to allow a
comparison with the other test statistics.
For multi-day abnormal returns we randomly draw for each event a number of abnormal returns
equal to the number of days in the period of interest, i.e., if we want to test the period [-2 0] on
signicance, we draw three abnormal returns from the estimation period. Afterward, we calculate
the randomly sampled cumulative abnormal return for each event. That followed, we calculate
the mean cumulative abnormal returns over the sample as well as the standard deviation and the
corresponding t-value. Then, we proceed in the same way as already described above.
Furthermore, we apply the same procedure to mean values for single and multi-day returns.
This implies that we calculated the average over the sample of abnormal returns on day t, AR
t
.
Afterward, we generated a distribution of the mean abnormal return under the null-hypothesis
similar to the procedure for the t-values by calculating random samples of mean abnormal returns,
AR
r
. By applying this procedure, we obtained a slightly higher signicance for testing on abnormal
returns by applying the procedure to mean abnormal returns instead of t-values, however, only in
a irrelevant way for the interpretation of the results.
31
B Additional Results for Abnormal Returns and Trading
Volume
[Table B.1 about here]
[Table B.2 about here]
32
Table 1: Related Empirical Literature on CEO Turnovers
This table provides an overview of important empirical contributions related to this paper. The table provides information about the market investigated (Market),
the time period covered by the empirical sample (Years), the executive position under investigation (Pos.), the number of management turnovers considered in the
widest sample (Sample), the event window used for calculating abnormal returns (Window), and test results related to Hypothesis 1 (H1: Succession Type) and
Hypothesis 2 (H2: Departure Type) of this paper. OUT and INS indicate samples considering only company outsiders and company insiders as newly appointed
managers. In spite of the clear-cut classication provided in this table, the studies can dier in the specic mechanisms used to classify turnovers. Furthermore, in
the last column we indicate whether the study also examines the impact of manager turnovers on return on assets (ROA) and trading volumes (TV). ***, **, and *
denote signicances at the 1%, 5%, and 10% condence level, respectively, in a two-tailed test.
Authors Market Years Pos. Sample Window H1: Succession Type H2: Departure Type ROA/TV
OUT INS FOR VOL
Reinganum (1985) USA 19781979 Top 353 [0] 1.17%** -0.13% /
Beatty and Zajac (1987) USA 19791980 CEO 209 [0] 0.10% 0.00% /
Furtado and Roze (1987) USA 19751982 Top 323 [0 1] 0.72% 1.05%*** 1.03%** /
Warner, Watts, and Wruck (1988) USA 19631978 Top 230 [-1 0] 0.34%** 0.14% /
Mahajan and Lummer (1993) USA 19721983 Top 498 [-1 0] -0.73%* 0.21% /
Worrell, Davidson, and Glascock (1993) USA 19631987 Top 62 [-1 0] -1.17% 0.83% 0.38% /
Park and Roze (1994) USA 19791986 CEO 385 [-1 0] 0.61% -0.34% /
Denis and Denis (1995) USA 19851988 CEO 328 [-1 0] 2.50%*** 0.61% /
Khanna and Poulsen (1995) USA 19801990 Top 121 [-1 0] -0.26% 0.00% /
Huson, Parrino, and Starks (2001) USA 19711995 CEO 854 [-2 2] 2.49%*** 2.02%*** /
Shen and Cannella (2003) USA 19881997 CEO 177 [-1 1] 1.95%*** /
Adams and Mansi (2009) USA 19732000 CEO 674 [-1 1] 2.42%*** 0.15% 2.43%*** 0.27%** /
Dahya, Lonie, and Power (1998) UK 19891992 Top 105 [-1 0] 0.12%** -0.02% /
Dedman and Lin (2002) UK 19901995 CEO 251 [-1 1] -3.40%*** 0.13% /
Dahya and McConnell (2005) UK 19881999 CEO 523 [-1 0] 0.79%*** 0.20% /
Hillier and McColgan (2005) UK 19931998 CEO 462 [-1 1] 11.82% 0.92%** /
Dherment-Ferere and Renneboog (2002) FR 19881992 CEO 92 [-1 0] 0.50% 0.40% /
Kang and Shivdasani (1996) JP 19851990 CEO 432 [-1 0] 0.95%** 0.38%** 1.02%** 0.40%** /
Setiawan (2008) ID 19922003 CEO 59 [0] 0.90% -2.30% -1.20% 0.00% /
Neumann and Voetmann (2005) DK 19941998 CEO 81 [-1 1] 1.10%** -1.00%** /
Danisevska, de Jong, and Rosellon (2003) NL 19931999 CEO 84 [0 1] -0.54% /
Cools and van Praag (2007) NL 19911999 Top 227 [0 1] 0.97% /
3
3
Table 2: Sample Construction
This table gives an overview about the sample construction. In particular, the table reports the number of events excluded from the
sample due to the selection criteria presented in Section 3.1.
Step CEO-Turnover Sample Number of CEO Turnovers
1. Total CEO Turnovers for the period 1998 to 2009 347
2. Missing exact announcement time and date -56
3. Confounding events -67
Simultaneous earnings and dividend announcements 62
Organizational change (e.g. merger, acquisition) 5
4. Insucient stock price data -16
Less than 40% of trading days in estimation period 11
Too short stock price history to estimate market model 5
5. Final sample of CEO turnovers 208
34
Table 3: Statistics on CEO Turnovers in the Sample
This table reports the number and characteristics of CEO turnovers between January 1998 and June 2009 that comply with the sample selection criteria presented
in Section 3.1. The sample includes 208 CEO turnovers at 127 companies. Total Turnover indicates the number of all CEO turnovers during a particular year.
Successor Origin is subdivided into the categories Insider and Outsider, depending on whether the newly appointed CEO is already a company employee or not.
Departure is subdivided into the categories Forced and Voluntary, depending on whether the departing CEO was forced to leave the company by a boards decision
or not. Performance is subdivided into the categories Underperformance and Overperformance, depending on the prior performance of the stock price relative to a
broad market index (SPI) in the one-year period before the CEO-turnover announcement date.
Year Total Turnovers Successor Origin Departure Performance
Insider Outsider Voluntary Forced Underperf. Overperf.
1998 5 3 2 2 3 4 1
1999 10 10 0 9 1 8 2
2000 13 8 5 12 1 8 5
2001 16 8 8 11 5 11 5
2002 24 14 10 12 12 21 3
2003 17 13 4 10 7 8 9
2004 26 16 10 22 4 11 15
2005 11 6 5 7 4 6 5
2006 25 17 8 20 5 13 12
2007 29 22 7 21 8 10 19
2008 19 9 10 15 4 8 11
2009 13 7 6 7 6 10 3
Total 208 133 75 148 60 118 90
Total % 100% 64% 36% 71% 29% 57% 43%
3
5
Table 4: Abnormal Returns
This table reports the mean and median abnormal stock returns obtained from an event study of CEO turnover announcements. As
indicated in column 1 of the table the abnormal returns refer to dierent event windows. Mean and median abnormal returns are shown in
column 2 and column 4, respectively. The table presents results both for the entire sample (Panel A) and for selected subsamples (Panels
B-H). The parameters for the market model are estimated over a period of 250 trading days ending 11 days prior the CEO turnover
announcement. The one-sided event-study test statistics are the Standardized cross-sectional test by Boehmer, Musumeci, and Poulsen
(1991) (t-value) and the Wilcoxon signed rank test (z-value). ***, **, and * denote signicances at the 1%, 5%, and 10% condence
level, respectively, in a two-tailed test.
Mean abnormal Median abnormal
Days return t-value return z-value
Panel A: Total Sample (n = 208)
[-2 0] 0.74%* 1.4381 0.32%* 1.4705
[-1 0] 0.53% 1.2453 0.01% 0.5017
[-1 1] 0.65%** 1.7612 0.35% 1.0770
-2 0.21% 0.8265 0.07%** 1.7835
-1 0.11% -0.0887 -0.05% 0.4591
0 0.42%* 1.4919 0.01% 1.0310
Panel B: Outside Successor (n = 75)
[-2 0] 1.85%** 2.2346 0.51%** 1.8852
[-1 0] 1.41%** 1.8146 0.00% 1.1248
[-1 1] 1.58%** 1.8962 0.71%* 1.5630
-2 0.44%* 1.5270 0.07%* 1.5683
-1 0.33% 0.6197 -0.06% 0.2429
0 1.08%* 1.5760 0.09%* 1.4733
Panel C: Forced Departure (n = 60)
[-2 0] 2.74%* 1.6192 0.81%** 1.8551
[-1 0] 2.27%** 1.7771 0.78% 1.1705
[-1 1] 1.94%* 1.3021 0.39% 0.7067
-2 0.47% 0.2008 0.00% 0.9791
-1 0.55% 0.6733 -0.03% 0.4196
0 1.72%** 1.6898 0.21%* 1.3472
Panel D: Prior Underperformance (n = 118)
[-2 0] 1.94%*** 3.1035 0.84%*** 2.6250
[-1 0] 1.56%*** 2.7211 0.20%** 1.8758
[-1 1] 1.62%*** 2.9018 0.77%** 2.1094
-2 0.38%* 1.4225 0.10%** 1.6824
-1 0.31% 0.9166 -0.03% 0.2028
0 1.25%*** 2.6401 0.19%** 2.0450
36
Table 4: Continued
Panel A: Prior Overperformance H4 (n = 90)
[-2 0] -0.84% -1.1554 -0.01% 0.9999
[-1 0] -0.82% -1.2317 -0.13%* 1.6276
[-1 1] -0.62% -0.6568 -0.42% 0.9878
-2 -0.01% -0.3144 0.01% 0.8188
-1 -0.17% -1.0855 -0.06% 0.9959
0 -0.66% -0.7752 0.00% 0.9838
Panel F: Outside Successor with Forced Departure H5 (n = 21)
[-2 0] 5.94%** 2.1617 2.21%** 2.0681
[-1 0] 4.72%* 1.6637 0.87%* 1.6162
[-1 1] 5.28%* 1.4928 1.72% 1.1644
-2 1.21% 1.2635 0.00%* 1.4772
-1 0.63% 0.2651 -0.08% 0.1564
0 4.10%* 1.5260 0.60%** 1.9986
Panel G: Forced Departure with Underperformance H6 (n = 39)
[-2 0] 5.07%*** 2.7397 3.98%*** 2.7212
[-1 0] 4.00%** 2.3002 2.10%** 1.9956
[-1 1] 3.71%** 2.0555 2.97%* 1.4374
-2 1.07%* 1.4885 0.31%** 1.7723
-1 1.07%* 1.5108 0.14% 1.1164
0 2.93%** 1.9069 1.81%** 1.8421
Panel H: Forced Departure with Overperformance H7 (n = 21)
[-2 0] -1.58% -1.1688 -0.15% 1.0254
[-1 0] -0.94% -1.1093 -1.32%* 1.5815
[-1 1] -1.35% -1.2798 -0.86%* 1.3382
-2 -0.63% -0.8742 -0.06% 1.0254
-1 -0.42% -1.2395 -0.11% 1.1644
0 -0.52% -0.2220 0.00% 0.8168
37
Table 5: Test on Dierences in Means (Restriction on One Turnover Characteristics)
This table shows the dierences in mean cumulative abnormal returns between all pairwise combinations of samples restricted on one
turnover characteristics over the window [-3 0], CAR
1
CAR
2
, where CAR
i
is the mean of the sample i. The t-statistic is calculated by
t =
_
CAR
1
CAR
2
_
/
_

2
(CAR
1
)/n
1
+
2
(CAR
2
/n
1
), where
2
(CAR
i
) is the variance, and n
i
the size of sample i. The construction
of the subsamples is based on the turnover characteristics successor origin (OUT denotes outside and INS inside successions), departure
type (FOR denotes forced and VOL voluntary turnovers), and prior performance (OVE denotes prior overperformance and UND prior
underperformance). ***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively.
OUT VOL FOR UND OVE
INS -1.96%* 0.19% -2.93%** -1.99%** 0.97%
OUT 2.16%** -0.96% -0.03% 2.94%***
VOL -3.12%** -2.18%*** 0.78%
FOR 0.94% 3.90%***
UND 2.96%***
38
Table 6: Test on Dierences in Means (Restriction on Two Turnover Characteristics)
This table shows the dierences in mean cumulative abnormal returns between all pairwise combinations of samples restricted on two turnover characteristics over the
window [-3 0], CAR
1
CAR
2
, where CAR
i
is the mean of the sample i. The t-statistic is calculated by t =
_
CAR
1
CAR
2
_
/
_

2
(CAR
1
)/n
1
+
2
(CAR
2
/n
1
),
where
2
(CAR
i
) is the variance, and n
i
the size of sample i. The construction of the subsamples is based on the intersection of two turnover characteristics, which
are successor origin (OUT denotes outside and INS inside successions), departure type (FOR denotes forced and VOL voluntary turnovers), and prior performance
(OVE denotes prior overperformance and UND prior underperformance). ***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively.
INS*FOR INS*UND INS*OVE OUT*VOL OUT*FOR OUT*UND OUT*OVE VOL*UND VOL*OVE FOR*UND FOR*OVE
INS*VOL -1.26% -1.35% 0.93% -0.49% -7.07%*** -4.20%*** 0.03% -0.52% 0.21% -6.08%*** 1.88%
INS*FOR -0.08% 2.19% 0.77% -5.81%** -2.93% 1.30% 0.74% 1.48% -4.82%** 3.14%*
INS*UND 2.28%** 0.85% -5.73%** -2.85%* 1.38% 0.82% 1.56% -4.74%*** 3.23%**
INS*OVE -1.42% -8.00%*** -5.13%*** -0.90% -1.45% -0.72% -7.01%*** 0.95%
OUT*VOL -6.58%*** -3.70%** 0.53% -0.03% 0.70% -5.59%*** 2.37%
OUT*FOR 2.88% 7.11%*** 6.55%*** 7.28%*** 0.99% 8.95%***
OUT*UND 4.23%*** 3.67%** 4.41%*** -1.89% 6.08%***
OUT*OVE -0.56% 0.18% -6.12%*** 1.85%
VOL*UND 0.73% -5.56%*** 2.40%*
VOL*OVE -6.30%*** 1.67%
FOR*UND 7.97%***
3
9
Table 7: Abnormal-Return Ranking for Subsamples
This table shows the abnormal-return rankings for subsamples based on the turnover characteristics successor origin (OUT denotes
outside and INS inside successions), departure type (FOR denotes forced and VOL voluntary turnovers), and prior performance (OVE
denotes prior overperformance and UND prior underperformance). The subsamples are constructed based on one (Panel A), two (Panel
B), and three (Panel C) turnover characteristics. Rank indicates the position of the subsamples with respect to the mean AR in the
event window [-3 0] (Mean AR [-3 0]). Sample Restriction identies the sample construction based on one, two, or three sample criteria
as listed under R1, R2, and R3. Events reports the number of CEO turnovers included in each subsample. Finally, t-value indicates the
test statistics obtained by a two-tailed Boehmer test (Boehmer, Musumeci, and Poulsen, 1991). ***, **, and * denote signicances at
the 1%, 5%, and 10% condence level, respectively.
Rank Sample Restriction Events Mean t-value
R1 R2 R3 AR [-3 0]
Panel A: Restriction on One Turnover Characteristics
1 FOR - - 60 2.94%* 1.9389
2 UND - - 118 2.00%*** 3.4086
3 OUT - - 75 1.98%** 2.3688
4 INS - - 133 0.01% 0.4008
5 VOL - - 148 -0.18% 0.3080
6 OVE - - 90 -0.96% -1.2637
Panel B: Restriction on Two Turnover Characteristics
1 OUT FOR - 21 6.71%** 2.6831
2 FOR UND - 39 5.73%*** 3.7352
3 OUT UND - 42 3.84%*** 2.8957
4 INS UND - 76 0.99%** 2.1734
5 INS FOR - 39 0.91% 0.8981
6 VOL UND - 79 0.16% 1.2709
7 OUT VOL - 54 0.13% 1.0604
8 INS VOL - 94 -0.36% -0.2694
9 OUT OVE - 33 -0.39% 0.1287
10 VOL OVE - 69 -0.57% -0.6358
11 INS OVE - 57 -1.29% -1.4381
12 FOR OVE - 21 -2.24%* -1.3576
Panel C: Restriction on Three Turnover Characteristics
1 UND FOR OUT 14 10.61%*** 4.2868
2 UND FOR INS 25 2.99%** 2.1398
3 UND VOL OUT 28 0.45% 0.8844
4 UND VOL INS 51 0.01% 0.9149
5 OVE VOL OUT 26 -0.21% 0.5886
6 OVE VOL INS 43 -0.79% -1.0047
7 OVE FOR OUT 7 -1.08% -1.4017
8 OVE FOR INS 14 -2.82% -1.0534
40
Table 8: Cross-Sectional Regressions of Abnormal Returns
This table reports the results of regressing the [-2 0]-abnormal returns on a set of explanatory variables: succession type, departure
type, relative performance, logarithm of total assets, and the age of the departing and the appointed CEO. The sample consists of 208
CEO turnovers at 127 companies in the Swiss Performance Index over the time period between December 1998 and June 2009. Outside
successions and forced departures are denoted by OUT and FOR, respectively. OVE is a dummy variables and denotes companies whose
stock experienced an overperformance against a broad market index of Swiss stocks in the estimation period of the market model. SIZE
denotes the logarithm of total assets, AGEDEP the age of the departing CEO and AGEINC of the appointed CEO. The notations
***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively, and the corresponding t-values are depicted in
parentheses.
Parameter Regr. 1 Regr. 2 Regr. 3 Regr. 4 Regr. 5 Regr. 6 Regr. 7
CONST 0.0011 -0.0007 0.0194*** 0.0178 0.1847* -0.0816 0.1012
(0.1999) (-0.1354) (3.2240) (0.6394) (1.3897) (-0.6513) (0.5705)
OUT 0.0173** 0.0172**
(1.8075) (1.8185)
FOR 0.0282*** 0.0240**
(2.8041) (2.2124)
OVE -0.0278*** -0.0259***
(-3.0349) (-2.8342)
SIZE -0.0007 -0.0008
(-0.3795) (-0.4058)
AGEDEP -0.0445* -0.0199
(-1.3349) (-0.5772)
AGEINC 0.0229 -0.0014
(0.7108) (-0.0427)
adj. R
2
0.0060 0.0274 0.0335 -0.0091 -0.0011 -0.0073 0.0595
41
Table 9: Cross-Sectional Regressions for Dierent Event Windows
This table reports the results of regressing the abnormal returns of dierent event windows on succession type, departure type, relative
performance and logarithm of total assets. The sample consists of 208 CEO turnovers at 127 companies in the Swiss Performance
Index over the time period between 1998 and 2009. Outside successions and forced departures are denoted by OUT denotes and FOR,
respectively. OVE is a dummy variables and denotes companies whose stock experienced an overperformance against a broad market
index of Swiss stocks in the estimation period of the market model. The fourth variable, SIZE, denotes the logarithm of total assets.
The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively, and the corresponding t-values
are depicted in parentheses.
Days CONST OUT FOR OVE SIZE adj. R
2
[-3 0] 0.0253 0.0191** 0.0291*** -0.0273*** -0.0015 0.0868
(0.9001) (2.0521) (2.9599) (-3.0462) (-0.8069)
[-3 1] 0.0592** 0.0181* 0.0241** -0.0268*** -0.0037* 0.0522
(1.7416) (1.6073) (2.0241) (-2.4684) (-1.6299)
[-2 0] 0.0178 0.0172** 0.0259*** -0.0256*** -0.0009 0.0672
(0.6294) (1.8295) (2.6105) (-2.8325) (-0.4841)
[-2 -1] 0.0043 0.0071 0.0092* -0.0080* -0.0002 0.0077
(0.2558) (1.2542) (1.5417) (-1.4679) (-0.1826)
[-1 0] 0.0139 0.0137* 0.0225*** -0.0220*** -0.0007 0.0538
(0.5303) (1.5711) (2.4431) (-2.6195) (-0.4230)
[-1 1] 0.0478* 0.0127 0.0175* -0.0215** -0.0029* 0.0289
(1.5229) (1.2189) (1.5878) (-2.1387) (-1.3957)
42
Table 10: Extended Cross-Sectional Regressions
performance, logarithm of total assets and a cross-term of forced turnovers with prior performance. The coecient estimates are for a
sample of 208 CEO turnovers at 127 companies in the Swiss Performance Index in the time period between 1998 and 2009. Panel A reports
the results with OVE as a dummy variable where stocks overperforming the broad market index in the estimation period of the market
model take on the value of one and zero otherwise. In Panel B the performance dummy is replaced by the realized relative performance
during the estimation period. OUT denotes outside successions. FOR denotes forced departures. SIZE denotes the logarithm of total
assets. In Panel A FOR*OVE is a dummy variable denoting forced turnovers in combination with prior overperformance and in Panel
B FOR*OVE is the interaction term of forced turnovers with prior performance. The notations ***, **, and * denote signicance at the
1%, 5%, and 10% condence level, respectively, and the corresponding t-values are depicted in parentheses.
Days CONST OUT FOR OVE SIZE FOR*OVE adj. R
2
Panel A: Prior Performance as Dummy Variable
[-3 0] -0.0059 0.0199** -0.0159 -0.0077 0.0029 -0.0708*** 0.1363
(-0.7433) (2.2109) (-1.0316) (-0.7576) (0.2740) (3.5857)
[-2 0] -0.0024 0.0175** -0.0089 -0.0105 0.0010 -0.0553*** 0.0959
(-0.2954) (1.9023) (-0.5659) (-1.0033) (0.0950) (2.7416)
Panel B: Prior Performance as Continuous Variable
[-3 0] 0.0058 0.0128* 0.0055 -0.0013 -0.0009 -0.0816*** 0.2184
(0.2262) (1.4738) (0.5598) (-0.0929) (-0.5021) (-4.4574)
[-2 0] -0.0018 0.0107 0.0019 -0.0074 -0.0002 -0.0770*** 0.2114
(-0.0698) (1.2303) (0.1883) (-0.5353) (-0.1270) (-4.1933)
43
Table 11: Cross-Sectional Regressions for Forced Turnovers
This table reports the results of regressing the abnormal returns of forced turnovers from the period [3 0] on succession type, departure
type, relative performance and logarithm of total assets. The coecient estimates are for a sample of 60 CEO turnovers at 45 companies
in the Swiss Performance Index in the time period between 1998 and 2009. OUT denotes outside successions. OVE denotes prior realized
relative performance as continuous variable. SIZE denotes the logarithm of total assets. The notations ***, **, and * denote signicance
at the 1%, 5%, and 10% condence level, respectively, and the corresponding t-values are depicted in parentheses.
Parameter Regr. 1 Regr. 2 Regr. 3 Regr. 4
CONST 0.0091 0.0023 0.0574 -0.0252
(0.6467) (0.2101) (0.9015) (-0.4630)
OUT 0.0581*** 0.0373**
(2.4512) (1.7962)
OVE -0.0853*** -0.0797***
(-5.5773) (-5.1427)
SIZE -0.0019 0.0011
(-0.4478) (0.3150)
adj. R
2
0.0621 0.3263 -0.0315 0.3398
44
Table 12: Overview on Tests
Method Literature Characteristics
Panel A: Parametric Tests
Traditional Brown and Warner (1980) t-values are calculated as the average of abnormal returns divided
by the average of standard deviation of abnormal returns. The
underlying assumption of the test is cross sectional independence
across the securities.
Portfolio Brown and Warner (1980) This test statistic takes into account the cross-sectional depen-
dence of the security returns.
Incorporating
Autocorrelation
Ruback (1982) This test adjusts for rst-order autocorrelation in abnormal re-
turns.
Standardized Residual Patell (1976) The event-period residuals are standardized by the standard de-
viation calculated over the estimation period. This standardiza-
tion diminishes the problem of heteroskedastic event-day resid-
uals. Therefore, stocks with large variances are prevented from
dominating the test statistics.
Standardized
Cross-Sectional
Boehmer, Musumeci, and
Poulsen (1991)
This test is a combination of the standardized-residual method-
ology by Patell (1976) and the ordinary cross-sectional approach
applied amongst others by Penman (1982). The test works well
in case of event-induced variance increases and eliminates the
heteroskedasticity problem associated with the ordinary cross-
sectional approach .
Panel B: Non-Parametric Tests
Wilcoxon Signed Rank Wilcoxon (1945) Both the sign and the magnitude of the abnormal returns are
incorporated for calculating the test statistic.
Corrado Rank Corrado (1989) There is no requirement of a symmetric security return distribu-
tion and the test is resistant to event-induced variance.
Generalized Rank Kolari and Pynnonen
(2008)
The test does not lose power in testing for cumulative abnormal
performance. Test is robust against serial abnormal return corre-
lation, clustering eects and event-induced variance increases.
Bootstrap - The distribution under H
0
is generated with random draws from
the estimation period residuals from each event in the sample. For
a detailed description of the Bootstrap method see Section 4.3.
45
Table 13: Overview on Test Statistics
Panel A shows the test statistic, t = AR
(
1
,
2
)/
_
AR
(
2
,
2
)
_
, for the parametric methods. The corresponding enumerator is shown
in the second column, denoted by AR
(
1
,
2
), and the denominator in the third column, denoted by
_
AR
(
2
,
2
)
_
. The variable
AR
it
represents the abnormal return of company i on day t, the variable AR
it
denotes the variable employed in the test statistic, and
(AR
i
) is the daily standard deviation of the abnormal returns over the estimation period. The parameter N denotes the number of
events, the estimation period covers the days -260 to day -11 prior the event, i.e. consists of a time span of 250 days. The variables
1
and
2
denote the rst and the last day, respectively, of the event window. The nonparametric test statistics are shown in Panel B.
Panel A: Parametric Tests
Method AR
(
1
,
2
)
_
AR
(
2
,
2
)
_
Traditional (Brown and
Warner, 1980)
2
t=
1
_
1
N
N
i=1
AR
it
_ _
(
2

1
+ 1)
1
N
2
N
i=1
_
11
t=260
(AR
it
AR
i
)
2
_
1/2
Portfolio (Brown and
Warner, 1980)
2
t=
1
_
1
N
N
i=1
AR
it
_
_
(
2

1
+ 1)
1
2501
11
t=260
(AR
t
AR
)
2
_
1/2
,
where AR
=
1
N
11
t=260
AR
it
Incorporating
Autocorrelation (Ruback,
1982)
2
t=
1
_
1
N
N
i=1
AR
it
_
_
T
1
2501
11
t=260
(AR
t
AR
)
2
+ 2 (T 1) +Cov
_
AR
t
, AR
t1
_
_
1/2
,
where T =
2

1
+ 1
Standardized Residual
(Patell, 1976)
2
t=
1
_
1
N
N
i=1
AR
it
(AR
i
)
_ _
(
2

1
+ 1)
_
N(2502)
2504
_
1/2
Standardized
Cross-Sectional (Boehmer,
Musumeci, and Poulsen,
1991)
2
t=
1
_
1
N
N
i=1
AR
it
(AR
i
)
_
_
1
N(N1)
N
i=1
_
AR
it
AR
t
_
2
_
1/2
Panel B: Nonparametric Tests
Method Test Statistic
Wilcoxon Signed Rank
(Wilcoxon, 1945)
Z =
W
n(n+1)
4
_
n(n+1)(2n+1)
24
, where W = min
_
N
i=1
B
+
i
rank (AR
i
(
1
,
2
)) ,
N
i=1
B
i
rank (AR
i
(
1
,
2
))
_
, where
B
+
i
=
_
1 if AR
i
(
1
,
2
) > 0
0 if AR
i
(
1
,
2
) < 0
and B
i
=
_
1 if AR
i
(
1
,
2
) < 0
0 if AR
i
(
1
,
2
) > 0
Corrado Rank (Corrado,
1989)
t =
1
N
N
i=1
_
2
t=
1
K
it
(
2
1
+1)E(K
i
)
_
(K)(
2
1
+1)
1/2
, where K
it
= rank(AR
it
), t = 260, 259, ..., +5,
E(K
i
) = 0.5 + 0.5 266 and (K) =
_
1
266
5
t=260
1
N
N
i=1
_
K
it
E(K
i
)
_
2
_
1/2
Generalized Rank (Kolari
and Pynnonen, 2008)
t =
K
0
0.5
(K)
, where K
0
=
rank
_
2
t=
1
K
t
_
T
+1
, (K) =
_
1
T
5(
1
2
)
t=260
_
K
t
0.5
_
2
_
1/2
,
K
t
=
1
N
N
i=1
K
it
, K
it
=
rank(GSAR
it
)
T
+1
, and T
= T (
2

1
+ 1)
GSAR
it
=
_
AR
it
(AR
)
, for t =
1
, ...,
2
AR
it
, for t = 260, ...,
1
1,
2
+ 1, ..., 5
, where AR
it
=
AR
it
(AR
i
)
Bootstrap See Appendix A for a detailed description.
46
Table 14: Robustness of Abnormal Returns
To test the abnormal returns on signicance nine event-study methodologies were employed in this paper. This table shows the test results for all the employed event
study-methodologies. The applied test statistics are the Traditional and the Portfolio test (Brown and Warner, 1980), the Standardized-residual test (Patell, 1976), the
Ruback (1982) test, the Standardized cross-sectional test (Boehmer, Musumeci, and Poulsen, 1991), a Bootstrap test, the Corrado (1989) rank test, the Generalized
rank test (Kolari and Pynnonen, 2008) and the Wilcoxon signed rank test. Tests have been conducted one-sided. The notations ***, **, and * denote signicance at
the 1%, 5%, and 10% condence level, respectively.
Days Traditional Portfolio Patell Ruback Boehmer Bootstrap Corrado Rank Gen. Rank Wilcoxon
[-3 0] 1.7852** 1.7730** 2.2085** 1.8874** 1.4862* 1.3732* 2.2928** 1.8144** 1.5510*
[-2 0] 2.1118** 2.0973** 2.3628*** 2.2162** 1.4381* 1.4357* 2.2578** 1.8323** 1.4705*
[-1 1] 1.8562** 1.8435** 2.9882*** 1.9480** 1.7612** 1.1600 1.9195** 1.7142** 1.0770
-1 0.5214 0.5179 -0.1063 0.5179 -0.0887 0.3752 -0.2172 -0.1286 0.4591
0 2.0973** 2.0829** 3.2096*** 2.0829** 1.4919* 1.0787 2.0285** 2.1001** 1.0310
1 0.5964 0.5923 2.0934** 0.5923 1.5900* 0.4214 1.5134* 1.5888* 0.9642
Panel B: Outside Successor H1 (n = 75)
[-3 0] 2.4959*** 2.4648*** 2.8092*** 2.5180*** 2.3688** 2.3539** 2.6633*** 2.5577*** 2.2231**
[-2 0] 2.6903*** 2.6567*** 2.9239*** 2.7075*** 2.2346** 1.9695** 2.3460*** 2.0244** 1.8852**
[-1 1] 2.3086** 2.2798** 2.9923*** 2.3234** 1.8962** 1.4268* 2.4302*** 1.9951** 1.5630*
-1 0.8261 0.8158 0.7079 0.8158 0.6197 0.6999 0.4771 0.5265 0.2429
0 2.7289*** 2.6949*** 3.0266*** 2.6949*** 1.5760* 1.3190* 1.8660** 1.9083** 1.4733*
1 0.4436 0.4380 1.4693* 0.4380 1.0554 0.3289 1.8660** 1.9083** 1.0984
Panel C: Forced Departure H2 (n = 60)
[-3 0] 3.1979*** 3.2682*** 3.4673*** 3.2666*** 1.9389** 2.5846*** 2.9645*** 2.6479*** 2.1938**
[-2 0] 3.4447*** 3.5204*** 3.2791*** 3.5189*** 1.6192* 2.3024** 2.5431*** 2.3023** 1.8551**
[-1 1] 2.4378*** 2.4914*** 2.7454*** 2.4904*** 1.3021* 1.3598* 1.4503* 1.0999 0.7067
-1 1.1875 1.2136 0.9177 1.2136 0.6733 0.9748 0.5294 0.5783 0.4196
0 3.7480*** 3.8304*** 4.4747*** 3.8304*** 1.6898** 1.7233** 2.2387** 2.2789** 1.3472*
1 -0.7130 -0.7287 -0.6180 -0.7287 -0.4188 -0.4281 -0.2560 -0.2031 0.6331
Panel D: Prior Underperformance H3 (n = 118)
[-3 0] 3.3993*** 3.4374*** 4.6588*** 3.6436*** 3.4086*** 3.3195*** 3.6047*** 3.5371*** 2.8050***
[-2 0] 3.8034*** 3.8461*** 4.8378*** 4.0491*** 3.1035*** 2.9196*** 3.2572*** 3.0859*** 2.6250***
[-1 1] 3.1750*** 3.2106*** 4.9164*** 3.3801*** 2.9018*** 2.2395** 2.8483*** 2.9905*** 2.1094**
-1 1.0666 1.0786 1.0508 1.0786 0.9166 1.0463 0.5375 0.6051 0.2028
0 4.2335*** 4.2811*** 5.6815*** 4.2811*** 2.6401*** 2.4394*** 2.9721*** 3.0244*** 2.0450**
1 0.1990 0.2013 1.8177** 0.2013 1.3016* 0.2621 1.4237* 1.4857* 0.6673
4
7
Table 14: Continued
Days Traditional Portfolio Patell Ruback Boehmer Bootstrap Corrado Rank Gen. Rank Wilcoxon
Panel E: Prior Overperformance H4 (n = 90)
[-3 0] -1.8269** -1.9216** -1.9770** -1.9818** -1.2637 -2.3096** -0.3301 -0.8553 0.9878
[-2 0] -1.8408** -1.9362** -1.9475** -1.9898** -1.1554 -2.3201** -0.0105 -0.4493 0.9999
[-1 1] -1.3704* -1.4415* -1.0867 -1.4814* -0.6568 -1.8682** -0.0940 -0.5651 0.9878
-1 -0.6422 -0.6755 -1.3648* -0.6755 -1.0855 -0.9392 -0.9142 -0.8509 0.9959
0 -2.4998*** -2.6293*** -1.6261* -2.6293*** -0.7752 -2.2276** -0.0586 -0.0000 0.9838
1 0.7683 0.8081 1.1010 0.8081 0.9093 0.5833 0.8100 0.8639 0.6699
Panel F: Outside Successor with Forced Departure H5 (n = 21)
[-3 0] 3.5388*** 3.5430*** 3.3983*** 3.6069*** 2.6831*** 3.3548*** 3.5368*** 3.1169*** 2.5894***
[-2 0] 3.6129*** 3.6172*** 3.2186*** 3.6750*** 2.1617** 2.3883** 3.0242*** 2.4911*** 2.0681**
[-1 1] 3.2107*** 3.2145*** 2.7494*** 3.2659*** 1.4928* 1.7295** 2.5152*** 1.4114* 1.1644
-1 0.6591 0.6599 0.3650 0.6599 0.2651 0.4806 0.2812 0.3096 0.1564
0 4.3189*** 4.3240*** 3.9980*** 4.3240*** 1.5260* 1.7143* 3.1157*** 3.1322*** 1.9986**
1 0.5831 0.5838 0.4184 0.5838 0.2868 0.3987 0.9595 0.9850 0.2954
Panel G: Forced Departure with Underperformance H6 (n = 39)
[-3 0] 4.3526*** 4.4115*** 6.0257*** 4.4681*** 3.7352*** 4.1047*** 4.2748*** 4.0425*** 3.3492***
[-2 0] 4.4468*** 4.5069*** 5.5638*** 4.5583*** 2.7397*** 3.3128*** 3.3867*** 3.1659*** 2.7212***
[-1 1] 3.2578*** 3.3019*** 4.7497*** 3.3395*** 2.0555** 1.9516** 2.3079** 1.9267** 1.4374*
-1 1.6194* 1.6413* 2.1671** 1.6413* 1.5108* 1.3763* 1.3676* 1.4023* 1.1164
0 4.4565*** 4.5168*** 5.8027*** 4.5168*** 1.9069** 2.1181** 2.5191*** 2.5484*** 1.8421**
1 -0.4332 -0.4390 0.2903 -0.4390 0.1830 -0.1391 0.1107 0.1511 0.3349
Panel H: Forced Departure with Overperformance H7 (n = 21)
[-3 0] -2.3271** -2.4030** -2.3510** -2.4071** -1.3576* -2.1104** -0.8998 -1.0214 1.3034*
[-2 0] -1.8926** -1.9544** -2.0394** -1.9573** -1.1688 -1.7857** -0.3903 -0.5175 1.0254
[-1 1] -1.6209* -1.6737* -1.8323** -1.6763* -1.2798 -1.9410** -0.7349 -1.0840 1.3382*
-1 -0.8721 -0.9005 -1.4021* -0.9005 -1.2395 -1.0212 -0.9831 -0.9489 1.1644
0 -1.0891 -1.1246 -0.3442 -1.1246 -0.2220 -1.0596 0.2856 0.3144 0.8168
1 -0.8463 -0.8739 -1.4401* -0.8739 -1.1557 -1.0217 -0.5755 -0.5431 0.8516
4
8
Table 15: Cross-Sectional Regressions for Subperiods
performance, logarithm of total assets and a cross-term of forced turnovers with prior overperformance. Panel A shows the regression
results for the time period 1998 - 2003 and Panel B the results for the period 2004 - 2009. OUT denotes outside successions. FOR
denotes forced departures. OVE assumes a value of one if the companys stock experienced an overperformance against broad market
index of Swiss stocks over the estimation period of the market model and zero otherwise. SIZE denotes the logarithm of total assets.
FOR*OVE is a dummy variable representing forced turnovers in combination with prior overperformance. The notations ***, **, and *
denote signicance at the 1%, 5%, and 10% condence level, respectively, and the corresponding t-values are depicted in parentheses.
Days CONST OUT FOR OVE SIZE FOR*OVE adj. R
2
Panel A: 1998 - 2003 (N = 85)
[-3 0] 0.0215 0.0240* 0.0790*** -0.0017 -0.0024 -0.1057*** 0.1850
(0.4102) (1.4349) (4.0981) (-0.0809) (-0.6874) (-2.9371)
[-2 0] 0.0515 0.0236 0.0799*** -0.0068 -0.0044 -0.0906** 0.1498
(0.8748) (1.2580) (3.6979) (-0.2929) (-1.1398) (-2.2457)
Panel B: 2004 - 2009 (N = 123)
[-3 0] 0.0170 0.0145* 0.0313** -0.0138 -0.0010 -0.0400** 0.0543
(0.5583) (1.3980) (1.9892) (-1.1967) (-0.5057) (-1.7242)
[-2 0] -0.0110 0.0112 0.0097 -0.0171** 0.0014 -0.0156 0.0273
(-0.4178) (1.2526) (0.7111) (-1.7154) (0.7824) (-0.7781)
49
Table 16: Rejection Rates for Dierent Event-Study Tests
This table shows the empirical rejection rates for the Bootstrap, the Standardized cross-sectional (Boehmer, Musumeci, and Poulsen,
1991) and the Wilcoxon signed rank test when there is no abnormal return present in the data. The underlying sample for this historical
simulation are the 160 stock price histories in the period from January 1990 to June 2009 from the sample with a complete data set where
we refrained to eliminate data points due to confounding events. This initial sample is employed to generate 250 random samples by
choosing each time randomly a number of securities, N (N {10; 20; 50; 100}) with replacement. The Bootstrap test was conducted by
resampling 10, 000 times from our initial sample of abnormal returns. The rejection rates of the simulations are obtained in a two-tailed
test at the 5% signicance level.
Method Number of Events
10 20 50 100 200
Panel A: Signicance Level 10%
Bootstrap 10.80% 9.60% 10.00% 10.00% 11.60%
Boehmer 7.60% 8.00% 10.80% 8.40% 12.00%
Wilcoxon 8.80% 9.20% 10.00% 9.20% 15.20%
Panel B: Signicance Level 5%
Bootstrap 6.40% 6.00% 4.00% 5.60% 6.80%
Boehmer 5.20% 5.20% 4.80% 4.80% 7.20%
Wilcoxon 2.00% 5.60% 6.00% 4.80% 4.80%
Panel C: Signicance Level 1%
Bootstrap 1.60% 1.60% 1.60% 1.20% 1.60%
Boehmer 0.00% 0.80% 1.20% 0.80% 1.60%
Wilcoxon 0.00% 0.00% 0.80% 0.40% 1.60%
50
Table 17: Impact of CEO Turnovers on Trading Volume
This table reports the test statistics for the trading volume around the CEO turnover announcement. The mean and median abormal trading volume are calculated
with non-log-transformed trading volumes as in Equation 1. The applied test statistics are the Traditional and the Portfolio test (Brown and Warner, 1980), the
Standardized-residual test (Patell, 1976), the Ruback (1982) test, the Standardized cross-sectional test (Boehmer, Musumeci, and Poulsen, 1991), a Bootstrap test,
the Corrado (1989) rank test, the Generalized rank test (Kolari and Pynnonen, 2008) and the Wilcoxon signed rank test. The mean abnormal trading volume is shown
in the second column and the median abnormal trading volume in the seventh column. Tests have been conducted one-sided. The notations ***, **, and * denote
signicance at the 1%, 5%, and 10% condence level, respectively.
Days Mean Portfolio Patell Boehmer Bootstrap Median Corrado Rank Gen. Rank Wilcoxon
[-3 -1] 34.05% 1.7750** -0.7321 -0.4228 2.8649*** -41.94% 1.7227** 1.5263* 0.2531
[-2 2] 240.93% 10.2419*** 7.3697*** 3.1013*** 3.7864*** 43.06% 5.0670*** 3.7656*** 4.6761***
[1 3] 110.30% 6.5323*** 4.3169*** 2.1706** 3.7864*** 6.82% 3.6639*** 2.8348*** 3.4277***
-1 10.65% 2.0788** 0.1190 0.0969 3.2382*** -17.03% 1.4244* 1.5277* 1.1380
0 129.97% 10.6347*** 10.0972*** 5.9646*** 3.7864*** 17.65% 4.0434*** 4.0844*** 6.6057***
1 55.66% 6.2036*** 5.3683*** 3.7534*** 3.7864*** -2.40% 3.0663*** 3.1306*** 4.6059***
[-3 -1] 39.40% 1.7899** -0.3498 -0.2009 2.6901*** -38.90% 1.7371** 1.4622* 0.5175
[-2 2] 233.39% 6.0089*** 3.4585*** 1.7136** 3.9113*** 39.06% 4.1500*** 2.7370*** 3.4218***
[1 3] 88.00% 3.8223*** 2.0051** 1.2119 3.9113*** 28.38% 2.9223*** 1.8768** 2.4449***
-1 13.38% 1.7667** -0.0086 -0.0072 3.1158*** -24.15% 1.3475* 1.4265* 1.2832*
0 131.73% 5.3504*** 4.4253*** 2.9159*** 3.9113*** 20.16% 2.9972*** 3.0435*** 3.8918***
1 59.21% 3.3154*** 3.3265*** 2.4292*** 3.9113*** 0.00% 2.4329*** 2.4904*** 3.0627***
Panel C: Forced Departure (n = 60)
[-3 -1] -4.87% -0.0667 -0.4720 -0.3310 0.7282 -47.02% 0.5557 0.1632 0.3681
[-2 2] 331.44% 6.0040*** 7.5014*** 3.7412*** 3.9621*** 100.56% 4.6931*** 3.4792*** 3.9826***
[1 3] 141.12% 3.3428*** 4.7670*** 2.5986*** 3.4602*** 50.59% 3.3408*** 2.4722*** 2.5545***
-1 11.71% 0.8879 0.5960 0.5460 1.6355* -12.01% 1.0352 1.1213 0.8613
0 196.37% 6.8708*** 9.2885*** 5.5586*** 3.9621*** 66.96% 4.3189*** 4.3394*** 5.2635***
1 101.87% 3.9077*** 5.5451*** 3.8861*** 3.9621*** 28.34% 3.1529*** 3.1967*** 3.6734***
Panel D: Prior Underperformance (n = 118)
[-3 -1] 57.52% 2.8406*** 1.1912 0.6639 3.1305*** -29.66% 1.7465** 1.6776** 1.0863
[-2 2] 257.13% 9.9621*** 7.5451*** 3.2646*** 3.8393*** 65.55% 5.2588*** 4.0283*** 4.8754***
[1 3] 126.62% 6.9453*** 4.7257*** 2.5042*** 3.8393*** 31.14% 3.9939*** 3.0258*** 3.8872***
-1 19.25% 2.5033*** 0.9669 0.7751 3.1608*** -9.85% 1.5181* 1.6129* 1.9080**
0 132.07% 9.1759*** 8.7676*** 5.0737*** 3.8393*** 21.87% 4.0452*** 4.0827*** 5.5978***
1 58.94% 6.0338*** 4.8974*** 3.6558*** 3.8393*** 4.12% 3.1819*** 3.2390*** 4.6579***
5
1
Table 17: Continued
Panel E: Prior Overperformance (n = 90)
[-3 -1] 3.27% -0.3021 -2.4768*** -1.5178* 0.9621 -71.42% 1.4383* 0.6445 0.9596
[-2 2] 219.70% 4.9439*** 2.5643*** 1.0461 3.6778*** -5.25% 4.0726*** 2.7963*** 1.4868*
[1 3] 88.89% 2.5380*** 1.1516 0.5452 2.6316*** -40.63% 2.6975*** 2.3029** 0.8550
-1 -0.63% 0.5028 -0.9261 -0.7702 1.1859 -34.54% 1.0934 1.1964 0.4527
0 127.21% 6.3488*** 5.3109*** 3.2293*** 3.8781*** -1.00% 3.4454*** 3.4956*** 3.5952***
1 51.35% 2.9949*** 2.5533*** 1.6552* 3.1241*** -15.59% 2.4652*** 2.5373*** 1.7684**
Panel F: Outside Successor with Forced Departure (n = 21)
[-3 -1] 34.09% 0.2083 0.0294 0.0192 0.8632 -38.90% 1.2023 0.8157 0.1564
[-2 2] 292.17% 3.3321*** 3.2357*** 1.6723* 4.4929*** 64.62% 3.6097*** 2.3860*** 2.1724**
[1 3] 55.49% 0.7268 0.7922 0.5038 1.3830* -74.18% 1.5486* 1.1573 0.2259
-1 24.38% 0.7930 0.4596 0.4097 1.4575* -11.99% 1.2162 1.2802 0.6778
0 178.20% 3.9666*** 4.1613*** 2.3491** 3.8193*** 38.23% 3.0071*** 3.0390*** 2.6242***
1 76.66% 1.5587* 2.5454*** 1.6021* 1.7833** 17.61% 1.9742** 2.0247** 1.1991
Panel G: Forced Departure with Underperformance (n = 39)
[-3 -1] 41.33% 1.3094* 1.3269* 0.8761 1.5995* -20.63% 0.8910 0.5960 0.8792
[-2 2] 478.75% 7.5214*** 9.1301*** 4.6366*** 4.1047*** 194.92% 5.2586*** 4.2049*** 4.1586***
[1 3] 201.82% 4.7667*** 5.8474*** 3.2996*** 4.1047*** 74.84% 3.5490*** 2.8145*** 3.1678***
-1 30.05% 1.6691* 1.6731* 1.5343* 2.1574** -0.87% 1.3963* 1.4698* 1.8421**
0 259.64% 7.0978*** 9.5123*** 5.6078*** 4.1047*** 72.79% 4.5197*** 4.5328*** 4.6051***
1 137.85% 4.9204*** 6.0309*** 4.4266*** 4.1047*** 30.50% 3.4383*** 3.4723*** 4.1028***
Panel H: Forced Departure with Overperformance (n = 21)
[-3 -1] -90.66% -2.2056** -2.6060*** -2.3547** -1.5154* -77.63% -0.1421 -1.2961* 2.2419**
[-2 2] 57.88% 1.0719 0.2374 0.1341 1.9780** 12.98% 2.4625*** 1.3600* 0.7473
[1 3] 28.41% -0.3151 0.0890 0.0484 0.5571 -47.24% 2.0672** 1.2384 0.1217
-1 -22.34% -0.7183 -1.2726 -1.2399 -0.4109 -28.57% 0.1612 0.2458 1.2339
0 78.87% 3.6037*** 2.7373*** 1.8518** 3.8193*** 38.23% 2.7829*** 2.8201*** 2.3114**
1 35.06% 0.6580 1.1542 0.7905 0.9690 -19.21% 1.8072** 1.8620** 0.5040
5
2
Table 18: Cross-Sectional Regressions Abnormal Trading Volume
This table reports the results of regressing the abnormal trading volume of the event day on succession type, departure type, relative
performance, logarithm of total assets and the age of the departing and the appointed CEO. The sample consists of 179 CEO turnovers
in companies of the Swiss Performance Index. Outside successions and forced departures are denoted by OUT and FOR, respectively.
OVE is a dummy variables and denotes for companies whose stock experienced an overperformance against a broad market index of
Swiss stocks in the estimation period of the market model. SIZE denotes the logarithm of total assets, AGEDEP the age of the departing
CEO and AGEINC of the appointed CEO. The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence level,
respectively, and the corresponding t-values are depicted in parentheses.
CONST 0.4829*** 0.3988*** 0.5273*** -0.0200 1.1722 -1.6383 -1.4850
(5.9520) (5.2585) (6.1245) (-0.0514) (0.6274) (-0.9362) (-0.5809)
OUT 0.0422 0.0772
(0.3126) (0.5662)
FOR 0.3442** 0.3164**
(2.4380) (2.0205)
OVE -0.0675 -0.0203
(-0.5154) (-0.1541)
SIZE 0.0361 0.0298
(1.3520) (1.0869)
AGEDEP -0.1690 0.1066
(-0.3610) (0.2149)
AGEINC 0.5509 0.2630
(1.2216) (0.5588)
adj. R
2
-0.0093 0.0186 -0.0085 -0.0009 -0.0091 -0.0025 0.0036
53
Table 19: Regression of Absolute Abnormal Returns on Trading Volume
This table reports the results for regressing absolute abnormal returns on the log-transformed abnormal trading volume for 208 CEO-
turnover announcements. The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively, in a
two-tailed test. The corresponding t-values are depicted in parentheses.
Parameter [-1] [0] [-1 1] [-2 2]
CONST 0.0187*** 0.0195*** 0.0350*** 0.0431***
(11.0858) (6.4010) (8.3243) (9.6323)
LTV
A
0.0071*** 0.0185*** 0.0097*** 0.0063***
(2.8586) (6.4273) (4.8977) (4.4779)
adj. R
2
0.0288 0.1589 0.0956 0.0798
54
Table 20: Operating Performance
This table reports the results for the companies operating performance (in %) adjusted by lagged companys performance and controlled
for industry eects, whereby from each companys operating performance we subtract the lagged companys OROA and the change in
the median operating performance of the companies in the same industry which in total represents the expected OROA for year t. After
obtaining the adjusted OROA values for the years -2 to +2 we calculate rst dierences from year t to year t 1 which are subsequently
used for obtaining the test results in the table below. The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence
level, respectively, for two-tailed tests.
Years Mean Change T-Test Median Change Wilcoxon
[-2 0] -0.54% -0.7078 -0.46%* 1.6747
[-1 0] -1.27%* -1.7145 -0.62%** 2.4068
[0 1] 1.14% 0.9669 0.64% 1.3685
[0 2] 2.19%*** 3.0344 0.86%*** 3.2930
[-2 0] 0.06% 0.0476 -0.37% 0.5999
[-1 0] -1.01% -0.8332 -0.46% 1.2279
[0 1] -1.42% -0.7759 0.53% 0.0281
[0 2] 2.04%** 2.0991 1.28%*** 2.6902
Panel C: Inside Successor (n = 85)
[-2 0] -0.89% -0.9162 -0.56%* 1.6629
[-1 0] -1.43% -1.5149 -0.76%** 2.0879
[0 1] 2.69%* 1.7625 0.78%* 1.7900
[0 2] 2.28%** 2.2782 0.86%** 1.9784
Panel D: Forced Departures (n = 39)
[-2 0] -0.83% -0.6342 -0.84% 1.2559
[-1 0] -0.75% -0.6183 -1.12% 1.0327
[0 1] -0.20% -0.1116 1.08% 0.7257
[0 2] 2.92%** 2.4106 1.98%*** 2.6375
Panel E: Voluntary Departures (n = 97)
[-2 0] -0.42% -0.4502 -0.31% 1.1712
[-1 0] -1.48% -1.6075 -0.44%** 2.1895
[0 1] 1.68% 1.1236 0.68% 1.1460
[0 2] 1.89%** 2.1332 0.57%** 2.2327
Panel F: Prior Underperformance (n = 83)
[-2 0] -0.42% -0.4486 -1.49%* 1.8615
[-1 0] -0.75% -0.9256 -1.01%* 1.6889
[0 1] 0.15% 0.1193 1.70% 0.8172
[0 2] 2.62%*** 2.8159 2.18%*** 3.3007
55
Table 20: Continued
Years Mean Change T-Test Median Change Wilcoxon
Panel G: Prior Overperformance (n = 53)
[-2 0] -0.72% -0.5574 0.15% 0.2523
[-1 0] -2.09% -1.4695 -0.24%* 1.6687
[0 1] 2.70% 1.1617 0.13% 1.0225
[0 2] 1.51% 1.3185 0.11% 0.7215
Panel H: Outside Successor with Forced Departure (n = 15)
[-2 0] 0.46% 0.1740 -0.73% 0.2840
[-1 0] -2.12% -1.4621 -1.39% 1.0223
[0 1] -1.33% -0.3198 1.33% 0.2840
[0 2] 2.59% 1.2415 2.59% 1.4767
Panel I: Outside Successor with Voluntary Departure (n = 36)
[-2 0] -0.11% -0.0823 -0.41% 0.6127
[-1 0] -0.55% -0.3390 -0.20% 0.9112
[0 1] -1.47% -0.7372 0.37% 0.1885
[0 2] 1.81% 1.6664 0.79%** 2.1838
Panel J: Forced Departure with Overperformance (n = 12)
[-2 0] -0.22% -0.2547 0.15% 0.1569
[-1 0] -1.66% -1.1843 -0.47% 1.0983
[0 1] -2.36% -0.7284 0.06% 0.4707
[0 2] 1.46% 1.0733 0.57% 1.0983
Panel K: Forced Departure with Underperformance(n = 27)
[-2 0] -1.10% -0.5911 -1.35% 1.3694
[-1 0] -0.34% -0.2083 -0.97% 0.6967
[0 1] 0.76% 0.3553 1.54% 0.6246
[0 2] 3.56%** 2.1730 2.61%** 2.2824
56
Table 21: Cross-Sectional Regressions Operating Performance
This table reports the results of regressing the change in adjusted OROA after the CEO turnover on succession type, departure type,
relative performance, logarithm of total assets and the age of the departing and the appointed CEO. The sample consists of 136 CEO
turnovers. The dependent variable is the change in adjusted OROA over the years [1 2] after the turnover. Outside successions and forced
departures are denoted by OUT and FOR, respectively. OVE is a dummy variables and denotes companies whose stock experienced an
overperformance against a broad market index of Swiss stocks in the estimation period of the market model. SIZE denotes the logarithm
of total assets, AGEDEP the age of the departing CEO and AGEINC of the appointed CEO. The notations ***, **, and * denote
signicance at the 1%, 5%, and 10% condence level, respectively, in a two-tailed test and t-values are depicted in parentheses.
CONST -0.0041 0.0021 0.0247* 0.0508 -0.0375 -0.1818 -0.3593
(-0.3257) (0.1766) (1.9433) (0.7346) (-0.1217) (-0.6975) (-0.9023)
OUT 0.0387* 0.0408*
(1.8871) (1.9533)
FOR 0.0290 0.0279
(1.3148) (1.2099)
OVE -0.0367* -0.0369*
(-1.8007) (-1.8026)
SIZE -0.0028 -0.0022
(-0.5901) (-0.4635)
AGEDEP 0.0120 0.0559
(0.1556) (0.7044)
AGEINC 0.0496 0.0439
(0.7381) (0.6542)
adj. R
2
0.0112 -0.0021 0.0089 -0.0124 -0.0149 -0.0109 0.0188
57
Table 22: Regressing Change in Adjusted OROAs [0 2] on CARs [-3 0]
This table shows the results from a robust linear regression of the changes in adjusted OROAs from the years [0 2] on the CARs from the
event period [-3 0]. The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence level, respectively, in a two-tailed
test. The corresponding t-values are depicted in parentheses.
Parameter Underlying Sample
Panel A: Total Sample (N = 145)
CONST 0.0017
(0.4290)
CAR [-3 0] 0.1112**
(2.4758)
Panel B: Single Restriction
INS OUT VOL FOR UND OVE
(N = 93) (N = 52) (N = 103) (N = 42) (N = 88) (N = 57)
CONST -0.0018 0.0057 0.0023 0.0103 0.0041 -0.0001
(-0.4567) (0.7428) (0.5934) (0.8104) (0.6281) (-0.0313)
CAR [-3 0] -0.0088 0.3991*** 0.1137** 0.0982 0.1012 0.0278
(-0.2006) (3.8800) (2.5387) (0.6346) (1.3715) (0.5175)
Panel C: Double Restriction
INS*VOL INS*FOR OUT*VOL OUT*FOR INS*UND INS*OVE
(N = 67) (N = 26) (N = 36) (N = 16) (N = 58) (N = 35)
CONST -0.0021 0.0148 0.0094 0.0073 -0.0003 -0.0038
(-0.4791) (1.0694) (1.3614) (0.3343) (-0.0486) (-0.6875)
CAR [-3 0] -0.0090 -0.1775 0.3026*** 0.4983* -0.0083 -0.0309
(-0.1962) (-0.9774) (2.9302) (2.0626) (-0.1213) (-0.5345)
Panel D: Double Restriction cont.
OUT*UND OUT*OVE VOL*UND VOL*OVE FOR*UND FOR*OVE
(N = 30) (N = 22) (N = 59) (N = 44) (N = 29) (N = 13)
CONST 0.0001 0.0070 0.0026 0.0027 0.0515*** -0.0081
(0.0078) (0.8782) (0.4439) (0.4996) (2.8237) (-1.0113)
CAR [-3 0] 0.5022*** 0.1991 0.0513 0.1742*** -0.1852 -0.0952
(3.0884) (1.4696) (0.7475) (2.9454) (-0.9468) (-0.5727)
58
Table B.1: Abnormal Returns
This table reports test results on abnormal returns for dierent event windows. The return periods for calculating the abnormal returns
are shown in the rst column. The mean and median abnormal returns are shown in column 2 and in column 4, respectively. Parameters
for the market model are estimated over 250 trading days ending 11 days prior the CEO turnover announcement. The applied event-study
test statistics are the Standardized cross-sectional test by Boehmer, Musumeci, and Poulsen (1991) for obtaining the t-values and the
Wilcoxon signed rank test for calculating the z-values. The notations ***, **, and * denote signicance at the 1%, 5%, and 10% condence
level, respectively, in a two-tailed test.
Panel A: Inside Successor (n = 133)
[-2 0] 0.11% 0.4213 0.25% 0.3515
[-1 0] 0.03% 0.3978 0.02% 0.3155
[-1 1] 0.12% 0.8460 0.00% 0.1830
-2 0.08% 0.1778 0.07% 1.0477
-1 -0.02% -0.5399 -0.05% 0.7422
0 0.05% 0.7653 0.00% 0.1763
Panel B: Voluntary Departure (n = 148)
[-2 0] -0.07% 0.4903 0.24% 0.5054
[-1 0] -0.18% 0.1108 -0.05% 0.2910
[-1 1] 0.13% 1.1945 0.35% 0.9571
-2 0.10% 0.9372 0.11%* 1.5391
-1 -0.07% -0.6307 -0.06% 0.8710
0 -0.10% 0.5017 0.00% 0.4097
Panel C: Prior Overperformance (n = 90)
[-2 0] -0.84% -1.1554 -0.01% 0.9999
[-1 0] -0.82% -1.2317 -0.13%* 1.6276
[-1 1] -0.62% -0.6568 -0.42% 0.9878
-2 -0.01% -0.3144 0.01% 0.8188
-1 -0.17% -1.0855 -0.06% 0.9959
0 -0.66% -0.7752 0.00% 0.9838
59
Table B.1: Continued
Panel A: Inside Successor with Voluntary Departure (n = 94)
[-2 0] -0.26% -0.1241 0.08% 0.0283
[-1 0] -0.35% -0.3965 -0.00% 0.6015
[-1 1] 0.11% 0.5759 0.00% 0.2960
-2 0.08% 0.5348 0.12% 1.1219
-1 -0.24% -1.1601 -0.06% 1.1897
0 -0.11% 0.1847 0.00% 0.2998
Panel B: Inside Successor with Prior Overperformance (n = 57)
[-2 0] -1.10% -1.2887 -0.02% 1.0766
[-1 0] -0.95% -1.1503 -0.14%* 1.4738
[-1 1] -0.88% -0.9048 -0.46%* 1.3388
-2 -0.16% -0.7641 0.12% 0.4568
-1 -0.31%* -1.3162 -0.11% 1.1322
0 -0.64% -0.5862 0.08% 0.5999
Panel C: Voluntary Departure with Prior Overperformance (n = 69)
[-2 0] -0.61% -0.6569 0.16% 0.6248
[-1 0] -0.79% -0.9278 -0.13% 1.0613
[-1 1] -0.40% -0.1341 -0.38% 0.4036
-2 0.18% 0.6134 0.19%* 1.3363
-1 -0.09% -0.6054 -0.05% 0.5710
0 -0.70% -0.7420 0.00% 0.7025
60
Table B.2: Impact of CEO Turnovers on Trading Volume
This table reports the test statistics for the trading volume around the CEO turnover announcement. The mean and median abormal trading volume are calculated
with non-log-transformed trading volumes as in Equation 1. The applied test statistics are the Traditional and the Portfolio test (Brown and Warner, 1980), the
Standardized-residual test (Patell, 1976), the Ruback (1982) test, the Standardized cross-sectional test (Boehmer, Musumeci, and Poulsen, 1991), a Bootstrap test,
the Corrado (1989) rank test, the Generalized rank test (Kolari and Pynnonen, 2008) and the Wilcoxon signed rank test. The mean abnormal trading volume is shown
in the second column and the median abnormal trading volume in the seventh column. Tests have been conducted one-sided. The notations ***, **, and * denote
signicance at the 1%, 5%, and 10% condence level, respectively.
Panel A: Inside Successor (n = 133)
[-3 -1] 31.03% 0.6667 -0.6528 -0.3767 1.7015** -51.23% 1.4857* 1.3703* 0.0236
[-2 2] 245.19% 8.9946*** 6.6192*** 2.5842*** 3.8254*** 59.74% 5.1070*** 3.8936*** 3.2800***
[1 3] 122.87% 5.7488*** 3.8929*** 1.8025** 3.6323*** -1.01% 3.7533*** 2.8496*** 2.4895***
-1 9.11% 1.1737 0.1553 0.1239 1.7079** -16.11% 1.2966* 1.4081* 0.4660
0 128.97% 10.3990*** 9.3041*** 5.2248*** 3.8254*** 17.31% 4.3169*** 4.3539*** 5.3035***
1 53.66% 5.8346*** 4.2154*** 2.8705*** 3.8254*** -3.23% 3.1509*** 3.2166*** 3.4866***
Panel B: Voluntary Departure (n = 148)
[-3 -1] 49.83% 2.3928*** -0.5673 -0.3074 2.9772*** -40.54% 2.1321** 1.8126** 0.4939
[-2 2] 204.24% 8.2105*** 3.9606*** 1.5883* 3.8143*** 11.29% 4.6707*** 3.3009*** 2.8829***
[1 3] 97.80% 5.6628*** 2.0825** 1.0208 3.8143*** -2.15% 3.4050*** 2.6933*** 2.3737***
-1 10.22% 1.9563** -0.2384 -0.1859 2.7660*** -29.92% 1.4616* 1.5641* 0.7887
0 103.04% 7.9677*** 6.0561*** 3.6375*** 3.8143*** -5.46% 3.4268*** 3.4826*** 4.2076***
1 36.92% 4.7358*** 2.8335*** 2.0058** 3.8143*** -11.68% 2.6628*** 2.7367*** 2.9748***
Panel C: Prior Overperformance (n = 90)
[-3 -1] 3.27% -0.3021 -2.4768*** -1.5178* 0.9621 -71.42% 1.4383* 0.6445 0.9596
[-2 2] 219.70% 4.9439*** 2.5643*** 1.0461 3.6778*** -5.25% 4.0726*** 2.7963*** 1.4868*
[1 3] 88.89% 2.5380*** 1.1516 0.5452 2.6316*** -40.63% 2.6975*** 2.3029** 0.8550
-1 -0.63% 0.5028 -0.9261 -0.7702 1.1859 -34.54% 1.0934 1.1964 0.4527
0 127.21% 6.3488*** 5.3109*** 3.2293*** 3.8781*** -1.00% 3.4454*** 3.4956*** 3.5952***
1 51.35% 2.9949*** 2.5533*** 1.6552* 3.1241*** -15.59% 2.4652*** 2.5373*** 1.7684**
6
1
Table B.2: Continued
Panel A: Inside Successor with Voluntary Departure (n = 94)
[-3 -1] 54.63% 0.9659 -0.3855 -0.2067 1.8409** -44.80% 2.1677** 1.9651** 0.1339
[-2 2] 200.63% 5.2113*** 3.4098*** 1.2518 3.6717*** 9.65% 4.7403*** 3.4424*** 1.6573**
[1 3] 96.16% 2.9941*** 1.1965 0.5390 2.7575*** -47.45% 3.1476*** 2.6487*** 0.9258
-1 10.86% 0.7918 -0.0743 -0.0563 1.4543* -23.62% 1.4619* 1.5742* 0.1339
0 96.95% 6.1835*** 5.6131*** 3.1112*** 3.8711*** -5.46% 3.6727*** 3.7284*** 3.2147***
1 28.02% 2.9691*** 1.7871** 1.2027 3.2504*** -18.96% 2.5935*** 2.6768*** 1.6950**
Panel B: Inside Successor with Prior Overperformance (n = 57)
[-3 -1] 24.32% -0.8133 -1.4474* -0.8498 0.1607 -75.00% 1.0317 0.8704 1.0527
[-2 2] 223.39% 2.9319*** 3.2823*** 1.2479 2.3366** 7.08% 3.9935*** 2.8392*** 0.9653
[1 3] 105.46% 1.4694* 1.9447** 0.8440 1.4792* -45.88% 2.7579*** 2.4425*** 0.6714
-1 4.05% -0.0463 -0.1623 -0.1288 0.3421 -23.04% 0.8685 0.9865 0.5045
0 111.31% 4.5320*** 5.5797*** 3.3087*** 3.7619*** -2.24% 3.9332*** 3.9776*** 3.0073***
1 43.64% 2.0291** 2.1644** 1.4280* 2.0304** -19.21% 2.4458*** 2.5259*** 1.2673
Panel C: Voluntary Departure with Prior Overperformance (n = 69)
[-3 -1] 31.86% 0.8431 -1.3911* -0.7918 1.4854* -59.45% 1.8872** 1.3758* 0.0209
[-2 2] 268.95% 5.2197*** 2.7976*** 1.0633 3.4372*** -17.58% 4.1006*** 2.7067*** 1.2825*
[1 3] 107.30% 3.1494*** 1.2662 0.5756 2.6490*** -35.39% 2.5269*** 2.3078** 1.0015
-1 5.97% 0.9801 -0.3557 -0.2839 1.4839* -37.65% 1.3178* 1.4129* 0.1285
0 141.92% 5.4935*** 4.5553*** 2.6765*** 3.9289*** -4.93% 3.1656*** 3.2200*** 2.8011***
1 56.31% 3.1572*** 2.2793** 1.4452* 2.9781*** -11.98% 2.3448*** 2.4173*** 1.6831**
6
2
Figure 1: Sample Composition
This gure shows the composition of the sample with respect to the departure type (FORCED), the prior relative stock performance
(UNDERPERFORMANCE), and the successor origin (OUTSIDER). The gure reports the number of events that fall in each
category (N) together with the percentage of the total sample (in parenthesis).
N=26
(12.50%)
N=14
(6.73%)
N=7
(3.37%)
N=14
(6.73%)
N=28
(13.46%)
N=25
(12.02%)
N=51
(24.52%)
TOTAL SAMPLE: N=208 (100%)
OUTSIDER
N=75,
(36.06%)
FORCED
N=60,
(28.85%)
UNDERPERFORMANCE
N=118,
(56.73%)
Insider & Voluntary
& Overperformance
N=43
(20.67%)
63
Figure 2: Abnormal Returns
These gures show the average cumulative abnormal returns over a 7-day event window around the CEO turnover announcement date
(t=0). While the cumulative abnormal returns for the total sample are shown in Figure (a), Figures (b)-(f) refer to cumulative abnormal
returns of selected subsamples. The grey areas depict 5% condence intervals. If a specic hypothesis was set up for a subsample, the
intervals refer to 1.64 sigma bounds. In no hypothesis was formulated, the intervals refer to 1.96 sigma bounds around the average
cumulative abnormal returns.
(a) Total Sample (b) Successor Origin
3 2 1 0 1 2 3
4
2
0
2
4
6
8
10
x 10
3
Cumulative Abnormal Return
Day

Total Sample
3 2 1 0 1 2 3
0.015
0.01
0.005
0
0.005
0.01
0.015
0.02
0.025
Day

Insider
Outsider
(c) Departure Type (d) Prior Relative Performance
3 2 1 0 1 2 3
0.02
0.01
0
0.01
0.02
0.03
0.04
Day

Voluntary
Forced
3 2 1 0 1 2 3
0.015
0.01
0.005
0
0.005
0.01
0.015
0.02
0.025
Day

Underperformance
Overperformance
(e) Outside Successions and Departure Type (f) Forced Departures and Prior Performance
3 2 1 0 1 2 3
0.04
0.02
0
0.02
0.04
0.06
0.08
0.1
Day

OUT*FOR
OUT*VOL
3 2 1 0 1 2 3
0.04
0.02
0
0.02
0.04
0.06
0.08
Day

FOR*OVE
FOR*UND
64
Figure 3: Rejection Rates of the Null Hypothesis of Zero Abnormal Performance
These gures show the empirical rejection rates (y-axis) for the Bootstrap, the Standardized cross-sectional (Boehmer, Musumeci, and
Poulsen, 1991), and the Wilcoxon signed rank test in dependence of the abnormal returns (x-axis). Abnormal returns are articially
introduced on the event day of the the randomly drawn sample and range between -3% and +3%. The underlying sample for this
historical simulation comprises 160 realized stock-price histories in the period from January 1990 to June 2009. This original sample is
used to generate 250 event-study samples by randomly choosing with replacement a number of securities, N (N {10; 20; 50; 100}). The
Bootstrap test is conducted by resampling 1, 000 times from the initial sample of abnormal returns. The rejection rates of the simulations
are obtained in a two-tailed test at the 5% signicance level. Figure (a), Figure (b), Figure (c), and Figure (d) show the empirical
rejection rate for a sample of 10, 20, 50, and 100 securities, respectively.
(a) Sample of 10 Events (b) Sample of 20 Events
3 2.5 2 1.5 1 0.5 0 0.5 1 1.5 2 2.5 3
0
10
20
30
40
50
60
70
80
90
100
Rejection Rates of the NullHypothesis with 10 Events
Induced Level of Abnormal Performance (in %)
R
e
j
e
c
t
i
o
n

R
a
t
e

(
i
n

%
)

Bootstrap
Boehmer
Wilcoxon
3 2.5 2 1.5 1 0.5 0 0.5 1 1.5 2 2.5 3
0
10
20
30
40
50
60
70
80
90
100
R
e
j
e
c
t
i
o
n

R
a
t
e

(
i
n

%
)

Bootstrap
Boehmer
Wilcoxon
(c) Sample of 50 Events (d) Sample of 100 Events
3 2.5 2 1.5 1 0.5 0 0.5 1 1.5 2 2.5 3
0
10
20
30
40
50
60
70
80
90
100
R
e
j
e
c
t
i
o
n

R
a
t
e

(
i
n

%
)

Bootstrap
Boehmer
Wilcoxon
3 2.5 2 1.5 1 0.5 0 0.5 1 1.5 2 2.5 3
0
10
20
30
40
50
60
70
80
90
100
R
e
j
e
c
t
i
o
n

R
a
t
e

(
i
n

%
)

Bootstrap
Boehmer
Wilcoxon
65
Figure 4: Abnormal Trading Volume
These gures show the daily standardized mean abnormal trading volume, STV
A
, in percentage points over a 7-trading-day window in
the surroundings of the CEO turnover announcement date (t = 0). While Figure (a) refers to the total sample, Figures (b)-(f) plot the
development of the cumulative standardized mean abnormal trading volume for selected subsamples. The dashed lines show the standard
error of the mean daily abnormal trading volumes.
3 2 1 0 1 2 3
0
20
40
60
80
100
120
140
Daily Standardized Abnormal Trading Volume in %
Day

Total Sample
3 2 1 0 1 2 3
0
20
40
60
80
100
120
140
Day

Insider
Outsider
3 2 1 0 1 2 3
50
0
50
100
150
200
Day

Voluntary
Forced
3 2 1 0 1 2 3
20
0
20
40
60
80
100
120
140
Day

Underperformance
Overperformance
3 2 1 0 1 2 3
50
0
50
100
150
200
Day

OUT*FOR
OUT*VOL
3 2 1 0 1 2 3
50
0
50
100
150
200
250
300
Day

FOR*OVE
FOR*UND
66
Figure 5: Cumulative Abnormal Trading Volume
These gures show the cumulative standardized mean abnormal trading volume, STV
A
, in percentage points over a 7-trading-day window
in the surroundings of the CEO turnover announcement date (t = 0). While Figure (a) refers to the total sample, Figures (b)-(f) plot
the development of the cumulative standardized mean abnormal trading volume for selected subsamples. The dashed lines represent 1.96
sigma bounds around the cumulative abnormal trading volume.
3 2 1 0 1 2 3
100
0
100
200
300
400
500
Cumulative Standardized Abnormal Trading Volume in %
Day

Total Sample
3 2 1 0 1 2 3
100
0
100
200
300
400
500
Day

Insider
Outsider
3 2 1 0 1 2 3
100
0
100
200
300
400
500
600
Day

Voluntary
Forced
3 2 1 0 1 2 3
100
0
100
200
300
400
500
Day

Underperformance
Overperformance
3 2 1 0 1 2 3
100
0
100
200
300
400
500
600
Day

OUT*FOR
OUT*VOL
3 2 1 0 1 2 3
200
0
200
400
600
800
1000
Day

FOR*OVE
FOR*UND
67
Figure 6: Operating Performance
These gures show the development of the median abnormal operating performance in the years surrounding the CEO turnover. In
particular, abnormal operating performance is calculated by subtracting from the realized companys operating performance the sum
of the lagged companys OROA and the change in the median operating performance of the companies in the same industry. While
Figure (a) refers to the total sample, Figures (b)-(f) plot the development of the median abnormal operating performance for selected
subsamples.
2 1 0 1 2
0.6
0.5
0.4
0.3
0.2
0.1
0
0.1
0.2
0.3
Median Industry and Lagged Performance Adjusted OROA
Year

Total Sample
2 1 0 1 2
0.8
0.6
0.4
0.2
0
0.2
0.4
0.6
0.8
1
Year

Insider
Outsider
2 1 0 1 2
1.5
1
0.5
0
0.5
1
Year

Voluntary
Forced
2 1 0 1 2
2
1.5
1
0.5
0
0.5
1
Year

Overperformance
Underperformance
(e) Departure Type with Outside Successions (f) Forced Departures with Prior Performance
2 1 0 1 2
1.5
1
0.5
0
0.5
1
1.5
Year

OUT*FOR
OUT*VOL
2 1 0 1 2
2
1.5
1
0.5
0
0.5
1
Year

FOR*OVE
FOR*UND
68

CFE1 Is A CEO Turnover Good or Bad News EFA2010

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CFE1 Is A CEO Turnover Good or Bad News EFA2010

Uploaded by

Copyright:

Available Formats

Is a CEO Turnover Good or Bad News?

Contact information: Email A. Kind: axel.kind@unibas.ch; Email Y. Schlpfer: yves.schlaepfer@unibas.ch. A

Department of Finance, University of Basel.

You might also like