The Effect of Managerial Turnover on Stock Performance

Sammanfattning: This thesis investigates the effect of managerial turnover on stock returns. It is performed by dividing the study into two distinctive parts; an event study determining abnormal returns on days surrounding managerial turnover and an examination of whether the Fama-French Three-Factor Model can explain the returns of zero-investment portfolios based on managerial turnover. The results obtained from the event study indicate significant negative abnormal stock returns related to managerial turnover. The study provides strong evidence for a negative relationship between CEO turnover and abnormal returns, whereas a weaker relationship is documented with respect to chairman of the board turnover. In addition, it is shown that the there exists significant alphas related to the zero-investment portfolios when controlling for the Fama-French factors; this implies evidence of either a shortcoming of the model or the existence of an unexplained anomaly. The authors provide several possible explanations for the results found.