CEO turnover, shareholder wealth and equity volatility

Submission note: A thesis submitted in total fulfilment of the requirements for the degree of Doctor of Philosophy to the La Trobe Business School, College of Arts, Social Sciences and Commerce, La Trobe University, Bundoora.

This thesis consists of three essays on chief executive officer (CEO) turnover, transparency of CEO turnover announcements, CEO succession plans, market reactions, and equity volatility using a sample of US firms during the 2003–2012 period. Essay 1, presented in chapter 2, develops two implicit reasons for firing a CEO, which are performance-related in the case of past underperformance and non-performance–related in the case of past outperformance. This chapter finds that firms that fire their CEOs for non-performance–related reasons tend to experience a deterioration in their performance, while firms that fire their CEOs for performance-related reasons experience an improvement in their performance. Moreover, it finds that firm value is positively related to the degree of transparency of the stated reasons. Overall, this chapter contributes to the literature by providing new evidence that power struggle and information asymmetry affect firm value. Essay 2, presented in chapter 3, examines under-explored special cases of interim and late successions. This chapter finds that the choice of a successor as an outsider or an insider plays a major role in determining the righteousness of the board of director’s (BOD) decision to employ an interim period. This chapter finds that employing an interim period of CEO search is mostly beneficial for firms. Overall, this chapter contributes to the literature by providing new evidence that the lack of CEO succession planning can be overcome by successor choice. Essay 3, presented in chapter 4, examines the relationship between the nature of CEO successions and subsequent market volatility. Chapter 4 finds that an increase in post-turnover equity volatility is most likely a result of doubts regarding the ability of the new CEO in implementing a change in the business strategy. Moreover, this chapter also highlights an arguably important benefit of having the executive powers shared between the CEO and the chairman, which is lessened uncertainty regarding the ability of a newly appointed CEO. Overall, the chapter contributes to the literature by providing new evidence that equity volatility is affected by a potential need for a change in business strategy following CEO turnover.