The Value Relevance of Forced Top Management Departures

This paper studies the value relevance of management turnover based on a sample of Dutch events. Consistent with previous studies we find weak or insignificant aggregate announcement effects on stock prices. The evidence is in conflict with effective internal monitoring from which positive abnormal returns would result. The hypothesis is that two opposing forces underlie the inconclusive result: (1) A positive real effect of the unanticipated forced resignation of a poor performing manager and (2) A negative information effect if the change signals worse management performance than anticipated. To test the hypothesis, announcement effects on trading volumes are analyzed too. Our conclusion supports the hypothesis: forced management departures are value relevant.top management turnover/resignations/changes; corporate governance; internal monitoring; value relevance; event study.

On the Virtues of Transparency and Simplicity

On the Virtues of Transparency and Simplicit

The value relevance of top executive departures: evidence from the Netherlands

Standard-Nutzungsbedingungen: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit company supported by Deutsche Post World Net. The center is associated with the University of Bonn and offers a stimulating research environment through its research networks, research support, and visitors and doctoral programs. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I E S IZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991)(1992)(1993)(1994)(1995)(1996)(1997)(1998)(1999)(2000). JEL Classification: J32, J33, M12, M51, G