Heterogeneous CEO Death Effects (CESifo)

Summary

• The final sample contains 449 CEO deaths in 440 firms, of which 152 are sudden and 297 are non-sudden.p.14
• The average abnormal announcement return for sudden deaths is a significant −1.72% on the announcement day, with an insignificant cumulative abnormal return of −0.94% in the 4-day window.p.5
• In 10% of cases stock prices drop by at least 13%, while in another 10% they rise by at least 11%.p.5
• Average four-day CARs are −3.38% for CEOs younger than 59 years compared to 4.39% for CEOs older than 65 years.p.5
• For young and old founder CEOs, average 4-day CARs are −5.92% and 7.04%, respectively.p.5
• Small firms suffer average valuation declines of almost 7%, while large firms see an insignificantly positive average CAR of 1.6%.p.18

Key insights

1. The average stock price reaction to sudden CEO deaths is small, but individual reactions vary widely in both directions.p.5
2. Deaths of young CEOs trigger announcement returns of −4.2%, while those of old CEOs trigger 4.0%, a difference of 8.2%.p.19
3. Sudden deaths of CEOs who are both old and long-tenured are on average followed by positive returns, suggesting entrenchment.p.19
4. A one standard deviation smaller firm size lowers announcement returns by 2.5-3.1%, and newly listed firms suffer 3.7-5.4% lower returns.p.20
5. Neither the speed and type of succession nor CEO pay changes have much explanatory power for the stock price reactions.p.25
6. Most variation in announcement returns remains unexplained, with the highest R2 in the regressions below 35%.p.25
7. An initial illness announcement could be found in only 80 out of 274 non-sudden death cases.p.26