Planting the Seed: Rumors and CEO Dismissal

Researchers have investigated the short-term performance implications of CEO dismissals as assessed through investor reactions to CEO dismissal announcements. While the corporate governance mechanism of dismissal that boards orchestrate when CEOs underperform could be positively perceived by investors, empirical evidence suggests that a positive association between CEO dismissals and investor reactions is equivocal. Thus, in my dissertation, I examine investor reactions to S&P 500 dismissal announcements and further understanding about this intriguing relationship through the development of theory that incorporates the important theoretical mechanism of information uncertainty. Since it is increasingly hard for boards to reduce the information uncertainty surrounding a CEO dismissal before it is announced, I deploy the network theory of stakeholder influences to suggest that the news media—through its’ published content—influences investor reactions to CEO dismissal announcements. I specifically focus on rumors published by the news media about the potential exit of CEOs before their exits are officially announced to make the case that this news content will positively influence investor reactions to CEO dismissal events. I further probe the mechanism of information uncertainty I use in my theorizing by examining additional uncertainty at the industry, firm, and security analyst levels. My theory and results provide theoretical and practical contributions and pave the way for new research.Advisors: Robert J. Campbell and Varkey Titus, Jr.