The Short-term Stock Price Reaction Surrounding CEO Turnover In Chinese Listed Companies

CEO turnover occurs increasingly in the worldwide and it is much faster inChinese listed companies than the world average. CEO turnover will makesignificant impacts on performance of the company in long term, yet investors’perception affect the stock price on current period. Studies about stock priceimpacts of CEO turnover in Chinese existing literatures are rare, so this paperstudies the short-term stock price impacts of CEO turnover, which enrichesexisting literatures and provides practical suggestions to investment decision.This paper improves the statistical test methods to a farther perception baseon the existing literatures, which including implements statistical tests to differentevent windows and grouped the samples according to the background of thecompany prior to CEO turnover.This paper uses the CEO turnover event in Chinese listed companies during2006to2013as samples to study, using the event study method, the short-termstock price impacts of CEO turnover. Examining the variance of abnormal returnin the event window determines the appropriate statistical test methods. Dividingthe event window into front, occurred and back window studies the situation ofinformation leakage and stock market efficiency. Grouping the samples studiesthe stock price reaction on different backgrounds of companies. Using cross-sectional multivariate regression studies the factors of abnormal returns.Empirical result shows CEO turnover event will increase the variance ofabnormal return in event window, so standardized cross-sectional method shouldbe used in statistical test. The result also shows that there is information leaka gesituation in Chinese stock market and its efficiency is well. The result finds nosignificant abnormal return if the stock return is higher than the market return andsignificant positive abnormal return if not. The result finds the abnormal return ishigher if the company had dividend than if not; and find positive abnormal returnin the low level information asymmetric and no significant abnormal return butfluctuate wildly in the high level information asymmetric; and find abnormalreturn is higher in bad performance companies than in good performancecompanies. By multivariate cross-sectional regression model finds investors whogain the leakage information care the education of new CEO and bachelor degreeof new CEO will produce maximum positive abnormal return; also find age,gender and company size have no contribution to abnormal return.