An uncertain end: The impact of CEO dismissals on stock prices pre and post departure

Abstract

Chief Executive (CEO) Dismissals has received much attention in research literature due to its increasing occurrence. However, there has been little attention to how CEO dismissals affect stock market reactions, specifically in Norway. This paper focuses on the extent to which the stock market guides and responds to the forced dismissal of CEOs. Prior research has demonstrated the occurrence of cognitive biases when perceiving leaders in relation to organizational performance as suggested by romance of leadership (Meindhl et al., 1985). In a sample of 36 instances of CEO dismissals in Norway we measured stock market reactions by gathering data on share price changes from day to day in a six-month period before and after the dismissal. The results were similar to the notions in romance of leadership, as the CEO was dismissed after a downturn, and an increase in share prices occurred following the dismissal. Future research should be conducted to see if the same pattern occurs when expanding the time interval.