A study of the market reaction to CEO change

Economic Annals-ХХI: Volume 187, Issue 1-2, Pages: 206-214

Citation information:
Jabbar, A. Kh., Hasan, H. F., & Khalbas, H. N. (2021). A study of the market reaction to CEO change. Economic Annals-XXI, 187(1-2), 206-214. doi: https://doi.org/10.21003/ea.V187-20

Ali Khazaal Jabbar
PhD (Accounting),
Assistant Professor,
Department of Business Administration,
College of Administration and Economics,
University of Majsan
Amarah, Majsan, 62001, Iraq
ORCID ID: https://orcid.org/0000-0002-5880-4963

Hussein Falah Hasan
PhD (Accounting),
Department of Accounting,
Dijlah University College
AlMasafi Str., Dorra, Baghdad, 00964, Iraq
ORCID ID: https://orcid.org/0000-0003-3520-804X

Hudaa Nadhim Khalbas
PhD (Accounting),
Assistant Professor,
Department of Accounting,
Dijlah University College
AlMasafi Str., Dorra, Baghdad, 00964, Iraq
ORCID ID: https://orcid.org/0000-0002-6238-3196

A study of the market reaction to CEO change

Abstract. The purpose of this study is to investigate how market reacts to CEO changes and how it may lead to abnormal stock returns. The research is of retrospective character and is based on publicly available information published by listed companies in Tehran Stock Exchange during 2011-2015 taken from a sample of 102 companies. The hypotheses were tested using panel regression with fixed effects for time series and merged effects for cross sections. The results of hypothesis testing showed that there is a negative and significant relationship between CEO change and abnormal stock returns. In other words, it can be argued that at the time of CEO change, stocks are underrated by stockholders, as a result of which the estimated stock return will be lower than expected.

Keywords: Abnormal Stock Returns; CEO Change; Market Reaction; Stock Valuation

JEL Classification: M40; M41; G32

Acknowledgements and Funding: The authors received no direct funding for this research.

Contribution: The authors contributed equally to this work.

DOI: https://doi.org/10.21003/ea.V187-20


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Received 4.10.2020
Received in revised form 18.11.2020
Accepted 27.11.2020
Available online 28.02.2021