Shareholder Wealth Effects of Management Changes

This paper analyzes the direction and magnitude of changes in stock prices resulting from the announcement of various types of changes in senior corporate management over a twelve‐year period. We find support for the view that instability resulting from executive succession adversely affects organizational performance. Furthermore, our results imply a clear preference by the market for a change in composition of the previous management team over its further entrenchment and a perception by the market that senior corporate executives and the board of directors may not be solely motivated by considerations of shareholder wealth maximization.