Impact of CEO turnover on Stock Price in the Modern Era

Abstract: This paper investigates the impact of CEO dismissal on a firm’s market performance across short, mid, and long-term horizons. It explores the immediate, intermediate, and enduring effects of CEO transitions on stock valuations, shedding light on how market responses evolve over time. Using event window analysis, historical stock prices from CompuStat, ExecuComp databases, and web scraping, the study examines stock price fluctuations around CEO departure announcements. The findings reveal that the cause of CEO dismissal significantly influences market performance, with involuntary turnovers consistently leading to stock price declines across all timeframes. The research highlights the modern era’s heightened sensitivity to CEO departures, emphasizing its implications for investor decision-making, corporate governance, and market valuation dynamics. However, the study is limited to U.S. firms and excludes delisted or merged companies due to data constraints. This paper is a pioneering effort in examining the causal relationship between CEO dismissal reasons and stock performance, offering valuable insights to NYSE investors on navigating market reactions to executive leadership changes. Keywords: CEO Turnover, Dismissal, Stock Price, Market Performance, Event Study