BU Bournemouth University Share Price Reactions to CEO Departures in UK Financial Firms By Isabel Pook MSc Finance 2017 ==
Abstract This research is an event study aiming analyse share price reactions to CEO departures in UK financial firms, between 2007 and 2017. The study looks at the abnormal returns of 24 CEO departure announcements over a seven-day event window surrounding the event. The abnormal returns were calculated by subtracting the expected return from the actual returns. The CEO distinction between departure types was categorised into forced, voluntary and death or illness announcements. The empirical results showed that all departure types yield a negative share price reaction suggesting that investors see CEO departure as bad news regardless of the nature of the departure. For forced CEO departures the results show abnormal returns of - 1.98%, however these results were largely influenced by specific cases. For voluntary departures the results showed abnormal returns of -0.77% which implies that the loss in CEO specific skills is a loss of value for investors. Finally for illness related departures the abnormal returns were -4.97%. The research shows that the largest abnormal returns are caused by illness related departures, due to the uncertainty and lack of direction this causes when a CEO is left unable to perform their duties. The results from this study can be used as an insight to the impact of CEO departure on financial firms because this is not largely studied. The results can also be beneficial to UK financial firms because they can anticipate negative results when announcing a CEO departure and prepare for this. Key words: CEO departure, Event study, Abnormal returns, UK Financial Firms ii
Table of Contents Research Project Declaration i Abstract Acknowledgements Table of Contents iv List of Tables vi Chapter One: Introduction 1 1.1 Background 1 1.2 CEO Departure Announcement Types 2 1.3 Forced CEO Departures 2 1.4 Voluntary CEO Departures 3 1.5 Death and Illness Related CEO Departures 4 1.6 Gap and Motivation 4 1.7 Aims and Objectives 5 1.8 Research Structure 6 Chapter Two: Literature Review 6 2.1 Impact of News and Announcements on Share Price 6 2.2 The CEO Effect 8 2.3. Forced CEO Departures 9 2.4 Voluntary CEO Departures 11 2.5 Death and Illness Related Departures 12 2.6.Evidence From The Financial Sector 13 2.7. Conclusion 15 Chapter Three: Research Methodology 15 3.1. Research Philosophy 15 3.2 Research Approach 16 3.3 Data 16 3.4 Data Source 17 3.5.Departure Characteristics 17 3.6. The Event Study 17 3.7 Calculation of Abnormal Returns 18 3.8 Event Window 22 21 3.9 Hypotheses 3