Stock Price Reactions to CEO Turnover - An event study of the Nordic markets

Sammanfattning: This thesis examines the short-term effect of CEO turnover on company performance. Previous studies based on American data have shown mixed results, hence the interest to test if the same would apply in a Nordic setting. The analysis was performed on a clean sample of 133 CEO turnover announcements from companies listed on the OMX Nordic exchanges in Stockholm, Copenhagen and Helsinki and on the Oslobørs exchange between January 2005 and December 2010. Using an event study approach and the market model, statistically significant positive abnormal stock returns of, respectively, 0,57%, 1,14% and 1,27% of stock return are found for [Event day +/- 1 trading days], [Event Day + 3 trading days] and [Event day + 5 trading days]. The data analysis shows a statistically significant positive effect from voluntary CEO turnover (i.e. retirement or resignation). Further, underperforming companies (measured via ROA) experience a statistically significant negative influence of -0,84% on stock return on the day of the announcement, whereas company size with significance plays no role (0,00%) in company valuation. Lastly, promoting a succeeding CEO from within the company negatively influences stock return by -1,12% on the day of the announcement. No statistically significant support was found for the hypotheses that the gender of the succeeding CEO, the tenure of the departing CEO or involuntary CEO turnover influences company valuation. Our findings, though inconclusive, lean towards compliance with 'the Event Views', which regard the occurrence of CEO turnover as non-attributable to the CEO as a person, but rather as a consequence of a more complex set of circumstances.