Welcome Back? Economic Consequences of CEO Reappointments

• In Event: Auditor and Executive Changes

Abstract

We analyze reappointments of former CEOs of U.S. listed firms over the period 1992 – 2013. For a sample of 117 CEO reappointments, we find that shareholders of these firms experience statistically significant negative stock valuation consequences. Our findings are robust to multiple return measurement windows and alternative definitions of abnormal returns. We also document that market reactions depend on certain executive-specific attributes, such as whether she is the founder of the firm or whether she is also appointed as chairman
board of directors. Finally, we show that firm performance deteriorates after a former CEO is appointed relative to appointing a non-former CEO. Our results provide evidence that the market considers reappointed CEOs as “leaders of last resort” and highlights the importance of CEO succession planning.

Authors

• Michael H. R. Erkens, Erasmus University Rotterdam

• Ying Gan, Erasmus Universiteit Rotterdam

• Herve Stolowy, HEC Paris