Does Firm Performance Improve After CEO Turnover?

Abstract

Several papers have evaluated the relationship between firm performance and CEO turnover. There is robust evidence that the separation between forced and voluntary resignations affects performance changes in the US. However, research on Norwegian companies is still an untouched territory, as far as we know. This paper seeks to analyze whether firm performance increases following a CEO turnover, taking into account forced and voluntary resignations. We have used two methods to gain knowledge on the topic. An event study uses daily stock returns, while profitability is evaluated through quarterly reported operating income. The results in this paper suggest that the announcement of a CEO turnover creates negative abnormal returns in the short run, for both forced and voluntary resignations. Forced turnovers experience an immediate improvement in operating performance after the turnover. Profitability seems to slightly improve in the long run, even though the estimates can be argued to be relatively small for both turnover characteristics evaluated.