최고경영자 교체유형에 따른 차별적 시장반응에 관한 연구 = A Study on the Market Reaction Associated with Type of CEO Turnover

다국어 초록 (Multilingual Abstract)

A change in executive leadership is a significant event in the life of a firm. This paper investigate the reaction of the Korean stock market to announcements of a change in the chief executive officer (CEO). The concern for stockholders is whether CEO replacement will influence the company’s stock value. However, the market reaction associated CEO turnover differ depending on the type of CEO turnover that would provide differential expectation about changes in current and future firm performance and changes in investing, operating, and financing policies. For Example, a forced turnover occurs when the stakeholder is dissatisfied with the existing CEO. If the stakeholder wishes to move the firm in a new directions and believes that the current CEO cannot perform the task, the board dismisses the CEO. This will be most common when the current business strategy is performing poorly, forcing the stakeholder to consider a successor CEO who is expected to take actions that include a combination of operating, investing, and financing policy changes. On the other hands, when a CEO voluntarily leave the firm, this event does not provide a signal to change firm strategy because voluntary turnover is not a stakeholder’s decision. Assuming that the market considers the different context between voluntary and forced turnover, market reaction surrounding CEO turnover is expected differently according to CEO turnover type. Therefore, to construct a powerful test of market reaction associated CEO turnovers, it is useful to identify types of CEO turnover. In this study, I propose quadruple classification of CEO turnovers based upon the joint types of departure of predecessor CEO and replacement by successor CEO. The four categories are characterized by peaceful departure succeeded by internally promoted new CEO, peaceful departure succeeded by externally recruited candidate, forced departure replaced by internal candidate, and forced departure accompanied by external replacement respectively. This study documents the differential market reaction according to CEO turnover under four different CEO turnover contexts for Korean listed company observations. The sample of this study covers firms from 2001 to 2013 listed on the Korea Stock Exchange market. Main analysis is to examine the market response using cumulative abnormal return (CAR) around CEO turnover announcements and to ascertain whether there are different market reactions across CEO turnover type or not. Main findings can be summaries as follows. First, market reaction associated CEO turnover is positive and significant for outside appointments but insignificant for inside appointment when the incumbent departs voluntarily. Second, the response of stock price on CEO turnover announcements is negatively significant for inside appointment but positively significant for outside appointment under forced succession. Third, After controlling for endogeneity of CEO turnover, I find evidence to support previous results based on standard event study methodology. Finally market reaction on CEO turnover tends to be affected by sound governance mechanism. These results suggest that each of these four categories represents differential context and circumstance so that market reaction are differently across CEO turnover type. The contribution of this study is as follows. First, this study provides the first comprehensive Korean evidence on the market reaction surrounding executive changes announcement by explicitly taking the differential contexts of CEO turnover along with the endogeneity issue associated with the firm performance and governance structure into account. Second, the results documented in this paper provide an important implication for diverse interest groups participating in the CEO turnover decisions and a logical underpinning on the relationship between the CEO turnover and stock price. By understanding the market response on CEO turnover in conjunction with specific contexts of CEO turnover, one can develop adequate intuition into circumstances surrounding certain types of CEO turnover, which will help various stakeholder groups to make proper judgement in selecting CEO and reviewing the effect of CEO turnover.