CEO succession puzzle in the Polish capital market

Abstract

Purpose The purpose of this paper is to analyse the market reaction to the appointments of chief executive officers (CEOs) in companies listed on the Warsaw Stock Exchange. The authors focussed on the relationship between the characteristics of a newly appointed CEO and the shareholders’ reactions to the appointment of a CEO. Design/methodology/approach To measure shareholder reaction, the authors apply an event study methodology. The determinants of reaction are identified on the basis of multi-regression analysis. Findings The results reveal a negative market reaction to all CEO appointments, both new appointments and reappointments. Investor reaction is driven more by the financial condition of the company, the company’s market performance and the free float, than by the characteristics of a newly appointed CEO. Neither the origins and generation (age) nor the gender of a CEO influence share prices. The relationship between the educational background of a CEO and shareholders’ reactions is mixed. Furthermore, the appointment of an inexperienced CEO seems to be preferred by investors. Research limitations/implications The study is restricted by certain limitations related to the adopted measures, the single-market research, data gaps and the selection of variables for regression analysis. A further cross-country study including Central and Eastern Europe and/or the transition economies of the Baltic Region is recommended. The relationship between the operating performance of a firm and its internal control mechanisms could be explored. Practical implications The findings might influence the decisions made by company owners and supervisory boards when appointing top executives, and might contribute to a better understanding of how CEO appointments can affect shareholder value creation. The results also provide important guidelines for institutions that oversee the financial system. Originality/value The findings of this study are expected to the findings are expected to contribute to the literature on the empirical analysis of the shareholder wealth effect, on signalling theory, on the phenomenon of information asymmetry and on corporate governance. The study covers a full economic cycle of the capital market, including the financial crisis and financial bubbles, and it fills a gap in the research regarding emerging markets and transition economies in Europe.

What Drives Shareholders' Reaction To CEO Turnovers, Dividend Changes, and Block Trades? A Theoretical Background

“…In line with the finance theory, a CEO turnover can significantly affect the value of future cash flows and the combined going concern risk (Byrka-Kita et al, 2018). Investors could assess a CEO turnover in the context of value creation and the shareholder wealth effect.…”

The influence of board members with foreign experience on the timely delivery of financial reports

“…Thirdly, as we have drawn our data from Poland, the study provides some insight into the Polish corporate governance system. Poland is characterised by a relatively new capital market with significant ownership concentration (Byrka-Kita et al 2018), along with corporate governance mechanisms that are still developing (Aluchna and Koładkiewicz 2010;Dobija and Klimczak 2010;Koładkiewicz 2012;Wąsowska and Postula 2018). Thus, research on a board's ability to monitor control functions and impact FRQ in this context is limited.…”