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An Analysis of the Stock Price Reaction to Sudden Executive Deaths: Implications for the Managerial Labor Market
Journal article   Peer reviewed

An Analysis of the Stock Price Reaction to Sudden Executive Deaths: Implications for the Managerial Labor Market

W Bruce Johnson, Robert P Magee, Nandu J. Nagarajan and Harry A Newman
Journal of accounting & economics, Vol.7(1-3), pp.151-174
04/01/1985
DOI: 10.1016/0165-4101(85)90034-5

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Abstract

Certain features of managerial employment arrangements and the managerial labor market cause shareholder wealth to depend on an executive's continued employment. The common stock price reaction to unexpected deaths of senior corporate executives is examined in order to determine these wealth effects. Abnormal stock price changes are documented for a sample of 53 events and are linked with the executive's status as a corporate founder and with measures of his abilities, his decision-making responsibilities, and the transaction costs related to renegotiating or terminating the employment agreement. The evidence suggests that: 1. sudden executive deaths had little systematic effect on average common stock returns during the period from the executive's death to the appearance of the obituary, and 2. announcement period excess returns manifested increased cross-sectional dispersion, indicating the occurrence of stock price adjustments to the executives' deaths.
 Chief executive officers Death & dying Deaths Decision making Employment Executives Hypotheses Impacts Implications Labor market Managers Rates of return Statistical analysis Stock prices Stockholders Studies Transaction costs Wealth

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