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Central European Management Journal

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Year 2017 
Volume 25 
Issue 2

Stock Market Reaction to CEO Appointment – Preliminary Results

Katarzyna Byrka-Kita
University of Szczecin

Mateusz Czerwiński
University of Szczecin

Agnieszka Preś-Perepeczo
University of Szczecin

2017 25 (2) Central European Management Journal

DOI 10.7206/jmba.ce.2450-7814.194

Abstract

Purpose: The aim of this paper is to examine shareholders’ reaction to the decision of the supervisory board to appoint a CEO in companies listed on the Warsaw Stock Exchange.

Methodology: An event study and the mean-adjusted model were applied. The abnormal returns were measured as the CAAR in the entire (-60, + 60) window and selected sub-windows.

Findings: The obtained values of abnormal returns indicate the shareholder’s negative reaction. Throughout the observation window, they oscillate slightly below zero, and in the window (0, +20) they are negative at -1.566%. Irrespective of the observation window, negative abnormal returns were obtained for over half of the observation (52–57%). Therefore, preliminary results indicate the predominance of the information effect over the real one. The decrease in market value as a result of the event may result from an increase in investors’ uncertainty as to the effects of changes in strategy and skills of the new CEO.

Originality: The research is a unique one. To date, no one has carried out research into shareholders’ reaction to a CEO appointment in either the Polish or Central and Eastern European capital markets. They primarily bring the value of cognition of shareholders’ behaviour in the analysed event, which is reflected in share prices. They extend the literature on the signalization instruments, i.e. the activities that boards can undertake due to the new information transmitted to the capital market participants and stakeholders. The market reaction to a CEO appointment will without a doubt interest investors; the institutions responsible for supervision (which in the case of Poland is the Financial Oversight Commission) and the legislator in charge of regulations that prevent insider trading while promoting corporate disclosure transparency.

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  68. Furtado, E.P. and Rozeff, M.S. (1987). The wealth effects of company initiated management changes. Journal of Financial Economics, 18(1): 147–160, https://doi.org/10.1016/0304-405X(87)90065-1 [Google Scholar]
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  73. Grusky, O. (1963). Managerial succession and organizational effectiveness. The American Journal of Sociology, 69: 21–31, https://doi.org/10.1086/223507 [Google Scholar]
  74. Gurgul, H. and Majdosz, P. (2007). Stock price and resignation of members of the board: The case of the Warsaw Stock Exchange. Managing Global Transitions, 5(2): 179–192. [Google Scholar]
  75. Helmich, D.L. (1975). Corporate succession: An examination. Academy of Management Journal, 18: 429–441, https://doi.org/10.2307/255674 [Google Scholar]
  76. Hiliard, J. and Savickas, R. (2000). On stochastic volatility and more powerful parametric tests of the events effects on unsystematic returns. Working paper, University of Georgia, https://doi.org/10.2139/ssrn.201257 [Google Scholar]
  77. Huang, H.H., Hsu, P., Khan, H.A. and Yu, Y.L. (2008). Does the Appointment of an outside Director Increase Firm Value? Evidence from Taiwan. Emerging Markets Finance & Trade, 44(3): 66–80, https://doi.org/10.2753/REE1540-496x440305 [Google Scholar]
  78. Ishak, R. and Latif, R. (2013). CEO Succession: Is It Good or Bad News? Proceedings of 7th Global Business and Social Science Research Conference: 1–18. [Google Scholar]
  79. Jaskóła, K. (2011). Are development of the human and organization contrary to each other? Practical considerations. The interview with Konrad Jaskóła – the chairman of the Polimex Mostostal S.A. Management and Business Administration. Central Europe, 19(1): 14–20. [Google Scholar]
  80. Jehn, K.A. and Bezrukova, K. (2004). A feld study of group diversity, group context, and performance. Journal of Organizational Behavior, Special Issue: Diversity and the Workplace, 25(6): 703–729, http://dx.doi.org/10.1016/j.jfneco.2010.07.004. (25.02.2016). [Google Scholar]
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  82. Kesner, I. and Sebora, T. (1994). Executive succession: past, present and future. Journal of Management, 20: 327–372, https://doi.org/10.1177/014920639402000204 [Google Scholar]
  83. Khanna, N. and Poulsen, A.B. (1995). Managers of fnancially distressed frms: Villains or scapegoats. The Journal of Finance, 3: 919–940, https://doi.org/10.1111/j.1540-6261.1995.tb04042.x [Google Scholar]
  84. Koźmiński, A.K. (2013). Wkład zarządzania we wzrost gospodarczy w krajach transformacji systemowej. Organizacja i Kierowanie, 3: 14–20. [Google Scholar]
  85. Lauterbach, B., Vu, J. and Weisberg, J. (1999). Internal vs. External Successions and Their Effect on Firm Performance. Human Relations, 52(12): 1485–1504, http://dx.doi.org/10.1023/A:1016980918820. [Google Scholar]
  86. Nguyen, B.D. and Nielsen, K.M. (2010). The Value of independent directors: Evidence from sudden deaths. Journal of Financial Economics, 98(3): 550–567, http://dx.doi.org/10.1016/j.jfneco.2010.07.004. [Google Scholar]
  87. Pessarossi, P. and Weill, L. (2013). Does CEO turnover matter in China? Evidence from the stock market. Journal of Economics and Business, 70: 27–42, http://dx.doi.org/10.1016/j.jeconbus.2013.04.003 [Google Scholar]
  88. Rose, G. (2007). Does female board representation influence frm performance? The Danish evidence. Corporate Governance: An International Review, 15(2): 404–413, https://doi.org/10.1111/j.1467-8683.2007.00570.x [Google Scholar]
  89. Spence, M. (1973). Job Market Signalling. The Quarterly Journal of Economics, 87(3): 355–374, https://doi.org/10.2307/1882010 [Google Scholar]
  90. Smith, N., Smith, V. and Verner, M. (2006). Do women in top management affect frm performance? A panel study of 2,500 Danish frms. International Journal of Productivity and Performance Management, 55: 569–593, https://doi.org/10.1108/17410400610702160 [Google Scholar]
  91. Sudarsanam, S. (2003). Creating Value from Mergers and Acquisitions. The Challenges. FT Prentice Hall. [Google Scholar]
  92. Warner, J.B., Watts, R.L. and Wruck, K.H. (1988). Stock prices and top management changes. Journal of Financial Economics, 20: 461–492, https://doi.org/10.1016/0304-405X(88)90054-2 [Google Scholar]
  93. Wiersema, M. and Moliterno, T. (2006). CEO turnover in the new era: A dialogue with the fnancial community. In: J. Baum, S. Dobrev and A. Witteloostuijn (eds.), Ecology and Strategy, Advancesin Strategic Management, Elsevier Press, Vol. 23: 137–176, https://doi.org/10.1016/S0742-3322(06)23005-5 [Google Scholar]
  94. Worrell, D.L., Davidson, W.N. and Glascock, J.L. (1993). Stockholder reactions to departures and appointments of key executives attributable to frings. Academy of Management Journal, 36(2): 387–401, https://doi.org/10.2307/256528 [Google Scholar]
  95. Worrell, D.L., Davidson, W.N., Chandy, P.R. and Garrison, S.L. (1986). Management turnover through deaths of key executives: Effects on investor wealth. Academy of Management Journal, 29(4): 674–694, https://doi.org/10.2307/255939 [Google Scholar]
  96. Worrell, D.L., Davidson, W.N., Chandy, P.R. and Garrison, S.L. (1986). Management turnover through deaths of key executives: Effects on investor wealth. Academy of Management Journal, 29(4): 674–694, https://doi.org/10.2307/255939 [Google Scholar]
  97. Allen, M.P., Panian, S.K. and Lotz, R.E. (1979). Managerial succession and organizational performance: A recalcitrant problem revisited. Administrative Science Quarterly, 24: 167–180, https://doi.org/10.2307/2392492 [Google Scholar]
  98. Adams, J.C. and Mansi, S. (2009). CEO Turnover and Bondholder Wealth. Journal of Banking and Finance, 33(3), http://ssrn.com/abstract=786687, http://dx.doi.org/10.2139/ssrn.786687 [Google Scholar]
  99. Agrawal, A., Jaffe, J.F. and Mandelker, G.N. (1992). The post-merger performance of acquiring firms: A reexamination of an anomaly. The Journal of Finance, XLVII(4): 1605–1621, https://doi.org/10.1111/j.1540-6261.1992.tb04674.x [Google Scholar]
  100. Beatty, R.P. and Zajac, E.J. (1987). CEO change and frm performance in large corporations: Succession effects and manager effects. Strategic Management Journal, 8: 305–317, https://doi.org/10.1002/smj.4250080402 [Google Scholar]
  101. Boeker W. (1992). Power and managerial dismissal: Scapegoating at the top. Administrative Science Quarterly, 37: 400–421, https://doi.org/10.2307/2393450 [Google Scholar]
  102. Bond, P., Edmans, A. and Goldstein, I. (2012). The Real Effects of Financial Markets. Annual Review of Financial Economics, Annual Reviews, 4(1): 339–360, https://doi.org/10.1146/annurev-fnancial-110311-101826 [Google Scholar]
  103. Böhren, O. and Ström, R.O. (2007). Aligned, informed, and decisive: Characteristics of value-creating boards. EFA 2007 Ljubljana Meetings Paper, http://ssrn.comabstract=966407 (25.02.2016). [Google Scholar]
  104. Bonnier, K.A. and Burner, R.F. (1989). An Analysis of Stock Price Reaction to Management Change in Distressed Firms. Journal of Accounting and Economics, 11(1): 95–106, https://doi.org/10.1016/0165-4101(89)90015-3 [Google Scholar]
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Byrka-Kita, K. , Czerwiński, M. , & Preś-Perepeczo, A. . (2017). Stock Market Reaction to CEO Appointment – Preliminary Results. Central European Management Journal, 25(2), 23-42. https://doi.org/10.7206/jmba.ce.2450-7814.194 (Original work published 2017)

MLA style

Byrka-Kita, K. , et al. “Stock Market Reaction To Ceo Appointment – Preliminary Results”. 2017. Central European Management Journal, vol. 25, no. 2, 2017, pp. 23-42.

Chicago style

Byrka-Kita, Katarzyna , Mateusz Czerwiński, and Agnieszka Preś-Perepeczo. “Stock Market Reaction To Ceo Appointment – Preliminary Results”. Central European Management Journal, Central European Management Journal, 25, no. 2 (2017): 23-42. doi:10.7206/jmba.ce.2450-7814.194.