The Stock Market Effects of CEO Succession in Bankrupt Firms

Abstract

This article examines the effects of CEO successions on stockholderwealth in large firms that are also experiencing bankruptcy. Succession announcements that occurred prior to and subsequent to bankruptcy announcements are associated with positive abnormal returns, and we found a greater incidence of outside succession near bankruptcy than for successions in general. The market's reaction was also more positive for outsiders than for insiders, and this was especially so when the succession happened after bankruptcy.

Corporate distress and turnaround: integrating the literature and directing future research

“…Furthermore, event studies by Weisbach (1988) and Davidson et al (1993) support positive stock price reactions on days when resignations are announced. Bankruptcy law in the USA allows for the incumbent's continued engagement, while Swedish bankruptcy filings automatically terminate the CEO's employment and yield the firm's auction.…”

“…Further, more positive market returns are achieved for external successors than internal ones, and especially after bankruptcy (Davidson et al 1993). However, these results seem to be limited to the private sector, as Boyne and Meier (2009) find that turnaround is more likely to be achieved by insiders than outsiders in the context of superintendent exchange in declining school districts.…”

Systematizing the Empirical Research on Corporate Distress. What Board Features Affect Survival?

“…Finally, in two samples (Davidson III, Worrell, & Dutia, 1993;Yawson, 2006), business sector, size and number of observations are different.…”

“…Only Daily and Dalton (1995), Haveman (1993) and Haveman and Khaire (2004) focus on CEO turnover as an antecedent, rather than a consequence, of corporate distress (again, Daily and Dalton (1995) look at both these issues). Thus, three articles out of 11 (27%) observe that CEO turnover has a positive impact on firm survival (Brockmann et al, 2006;Clapham et al, 2005;Davidson III et al, 1993), while one article (9%) finds that it does not (Daily & Dalton, 1995). Seven articles (64%) arrive at no definite conclusions on this research question (Arthaud-Day et al, 2006;Elloumi & Gueyiè, 2001;Gilson, 1990;Gilson & Vetsuypens, 1993;Parker et al, 2002;Perry & Shivdasani, 2005;Schwartz & Menon, 1985).…”

The Performance Consequences of Top Management Successions

“…Then there are other researchers who have shown interest in the effect of top management succession on organizations, although mostly through market and shareholders reactions such as stock prices (Beatty & Zajac, 1987;Davidson et al, 1993;Worrell et al, 1993).…”