Abstract

The primary objective of this study is to examine whether there is a market reaction around the announcement day of an outside Chief Executive Officer (CEO) appointment. A significant market reaction around the announcement would indicate the strategic importance of a CEO and his/her contribution to future firm prospects. Our dataset consists of 158 US firms over the period 1993 to 2005 that appointed an outside CEO. Using an event study methodology, our results indicated that there exist abnormal stock returns around the appointment day of an outside CEO. The results of this study should be of great importance to organizations and capital market participants, such as investors, analysts, bankers, simply because firms will give more emphasis on the selection criteria of an outside CEO appointment, which subsequently affects shareholders’ wealth.

Key words: Abnormal returns, CEO appointment, market reaction.