Changes in corporate management: do they have an impact on share prices and company earnings?

Abstract

2011),"Earnings per share versus cash flow per share as predictor of dividends per share", Managerial Finance, Vol. 37 Iss 5 pp. 482-488 http://dx.If you would like to write for this, or any other Emerald publication, then please use our Emerald for Authors service information about how to choose which publication to write for and submission guidelines are available for all. Please visit www.emeraldinsight.com/authors for more information. About Emerald www.emeraldinsight.comEmerald is a global publisher linking research and practice to the benefit of society. The company manages a portfolio of more than 290 journals and over 2,350 books and book series volumes, as well as providing an extensive range of online products and additional customer resources and services.Emerald is both COUNTER 4 and TRANSFER compliant. The organization is a partner of the Committee on Publication Ethics (COPE) and also works with Portico and the LOCKSS initiative for digital archive preservation. AbstractThis study has two main themes. The first is to investigate whether share prices are influenced by board of directors' decisions to change the composition of their top management teams, while the second examines the UK evidence relating to the oft-repeated suggestion that company earnings figures are likely to be manipulated by newly appointed, retiring or departing managers who are acting in their own self interest in seeking to enhance their future income; in such circumstances an identifiable pattern in earnings should emerge around the time of top management changes. Both themes confront important issues in corporate governance recently highlighted by the Cadbury Report and revisited in current debates in the financial press.

Chief Executive Officer/ Managing Director Succession and Value Relevance of Accounting Numbers

“…This is because, in a short period of time, investors might not be able to evaluate the contribution and performance of the new CEO/MD. This is consistent with the studies of Ishak et al (2013) and Dahyaa et al (2000) which concluded that improvement in post-succession performance can only be realized at least two years after the CEO/MD assumes the position.…”

“…Fanelli & Grasselli 2006;Tosi, Misangyi, Fanelli, Waldman & Yammarino 2004;Waldman, Ramirez, House & Puranam 2001), which provided evidence that CEO's charisma affects the perceptions of external stakeholders and share prices. However, as reported by Dahyaa et al (2000), relatively small or insignificant share price response was observed in earlier studies (such as Ishak & Abdul Latif 2012;Setiawan et al 2011;Cools & van Praag 2007;Warner, Watts & Wruck 1988), whereby this situation is due to investors' uncertainty of whether the performance of the "new" management is better than its predecessor (Dahyaa et al 2000).…”

“…This is because the new CEO may need to take some time to align his/her vision and strategy; and therefore improvements and profitability can only be realized at least two years after the transition year (Ishak et al 2013;Dahyaa et al 2000). The insignificance of TMC and TMC_1 might be due to the increase in the information asymmetry during the transition period (TMC) and a period after TMC (TMC_1).…”

“…either on market reactions that are reflected in changes of share prices, or financial and accounting performance of the firm at the end of financial year. An event study methodology is commonly used to evaluate investors' immediate reactions towards the announcement of top management succession (Cheung & Jackson 2012;Dherment-Ferere & Renneboog 2000;Ishak & Abdul Latif 2012;Rosli 2012;Setiawan et al 2011;Charitou, Patis & Vlittis 2010;Dahyaa et al 2000).…”

“…In relation to that, the departure of a well-respected CEO/MD may represent a loss of managerial talent to the company (Dahyaa, Lonie & Power 2000), thus affecting the firm's share price negatively. Meanwhile, the appointment of successor with desirable characteristics may give positive impact to the share price (Nguyen, Hagendorff & Eshraghi 2015).…”