Do Directors Respond to Stock Mispricing? Evidence from CEO Turnovers

This article examines whether and how stock mispricing can affect the probability of CEO turnover. In a sample of 1,573 US public firms, I find that, after controlling for fundamental performance, a 1-standard-deviation negative uninformative stock price shock increases the likelihood of CEO turnove...

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Bibliographic Details
Published in:Journal of financial and quantitative analysis 2023-09, Vol.58 (6), p.2732-2751
Main Author: Goldman, Jim
Format: Article
Language:English
Subjects:
Chief executive officers
Stock prices
Turnover
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Summary:This article examines whether and how stock mispricing can affect the probability of CEO turnover. In a sample of 1,573 US public firms, I find that, after controlling for fundamental performance, a 1-standard-deviation negative uninformative stock price shock increases the likelihood of CEO turnover by 10%. The mispricing-turnover sensitivity is stronger at firms with an independent board, and a difference-in-difference analysis further supports that finding. Ancillary results suggest that independent directors’ career concerns may play a role in the response of independent boards to mispricing.
ISSN:0022-1090
1756-6916
DOI:10.1017/S0022109022001193