The Importance of Board Quality in the Event of a CEO Death

Abstract

We examine board quality and executive replacement decisions around deaths of senior executives. Stock price reactions to executive deaths are positively related to board independence. Controlling for such factors as the deceased's stockholdings, outside blockholdings, board size, and whether the deceased was a founder, board independence is the most significant factor explaining abnormal returns. Board independence is particularly important when there is no apparent successor and firm performance is poor. The results are consistent with independent boards being reluctant to discipline poorly performing incumbent managers, but nevertheless using the opportunity of an executive death to improve the quality of management. Copyright 2006, The Eastern Finance Association.

The Determinants of the CEO Successor Choice in Family Firms

“…Becht et al (2003) define a director as 'independent' if he or she is not otherwise employed by the firm, is not engaged in business with the firm, and is not a family member of the founder or any executive hired by the firm. 2 We have identified five empirical studies that come closest to our investigation on independent directors' influence on the CEO successor choice: Dalton and Kesner (1985), Park and Rozeff (1994), Borokhovich et al (1996), Borokhovich et al (2006), and Hillier and McColgan (2009).…”

An Exploratory Analysis of Factors Influencing Initial Market Response and Media Reports following Shock Corporate Events

“…This is true of a wide variety of events and settings, so that the small statistical signals of price impact disappear soon after CEO deaths (Borokhovich, Brunarski, Donahue, and Harman, 2006;Salas, 2010), industrial accidents (Barnett and King, 2008), earnings surprises (Greene and Watts, 1996), and "unanticipated events" (Brooks, Patel, and Su, 2003). There are few exceptions to this pattern, other than industry deregulation or similar "Schumpeterian shocks" (Pettus, Kor, and Mahoney, 2009), and targets of changes in control such as acquisitions (Moeller, Schlingemann, and Stulz, 2005), and initial public offerings (Ritter and Welch, 2002).…”

“…Borokhovich, Brunarski, Donahue, and Harman (2006) find positive returns for three days after CEO deaths totaling about 2%. Salas (2010) finds a rise of 0.8% on the day after reports of the death of a chairman, president or CEO.…”

What Death Can Tell: Are Executives Paid for Their Contributions to Firm Value?

“…They find positive stock price reaction to the death of founder-CEOs and negative reaction to that of professional CEOs. Later papers have applied this approach to examining the value of various CEO characteristics (Worrell et al 1986, Slovin and Sushka 1993, Borokhovich et al 2006, and Salas 2010. Bennedsen et al (2007) study the event of the deaths of CEOs, and of their relatives, and show that CEOs are instrumental for corporate performance.…”