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Do Directors Respond to Stock Mispricing? Evidence from CEO Turnovers

Published online by Cambridge University Press:  08 November 2022

Jim Goldman Open the ORCID record for Jim Goldman [Opens in a new window]
Jim Goldman*
Affiliation:
University of Warwick, Warwick Business School
*
[email protected]
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Abstract

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This article examines whether and how stock mispricing can affect the probability of CEO turnover. In a sample of 1,573 US public firms, I find that, after controlling for fundamental performance, a 1-standard-deviation negative uninformative stock price shock increases the likelihood of CEO turnover by 10%. The mispricing-turnover sensitivity is stronger at firms with an independent board, and a difference-in-difference analysis further supports that finding. Ancillary results suggest that independent directors’ career concerns may play a role in the response of independent boards to mispricing.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 58 , Issue 6 , September 2023 , pp. 2732 - 2751
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

This article is based on the third chapter of my PhD thesis. For helpful comments and suggestions, I thank an anonymous referee, Kee-Hong Bae, Peter Cziraki, Ying Duan, Nick Gantchev, Denis Gromb, Maria Guadalupe, Dirk Jenter, HeeJung Jung, Paul Malatesta (the editor), Joel Peress, Stefan Zeume, as well as participants at the 2019 Western Finance Association meeting, the 2018 Northern Finance Association meeting, and the 2018 Conference in Asia-Pacific Financial Markets. Financial support from the Canadian Social Sciences and Humanities Research Council (SSHRC) is gratefully acknowledged (application ID: 430-2018-00473).

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