An analysis of the effect of changes in chief executive officers on the share prices of JSE listed companies

Carolissen, Rhys
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The role and importance of a company’s CEO has become an increasingly important topic of research. The executive leadership has an important role to play in defining the strategy of the firm and its ability to compete. The value relevance of the CEO of a company and thus any changes pertaining thereto is understood to be due to developments in information technology and reporting requirements. This characterizes an information environment whereby investors are better equipped at making more informed investment decisions. The current business has become increasingly more competitive and volatile. In response to this, market participants place greater value on the importance of the CEO of the company. The CEO of a company may possess the ability to lever the company above its competitors through the development and implementation of company strategy. This research report assesses how market participants react in response to CEO appointment announcements using a sample of 105 announcements using an event study methodology. The value relevance pertaining hereto can be ascertained by observing the abnormal returns of the company’s share price on the date of the announcement. In furtherance of this assessment, the sample is disaggregated in accordance to event specific, firm-specific and non-event specific factors. Prior research suggests that this analysis facilitates more robust inferences to be made on how market participants react to CEO appointment announcements. In both Africa and South Africa, a strong body of literature is yet to be established on this effect. In general, findings display significant market reactions in response to the CEO change, thus suggesting that market participants perceive the CEO change as a significant event in the life of the firm. On the day of the event strong positive abnormal returns were generating thereby indicating that investors react positively to the appointment of a new CEO. However, the negative cumulative abnormal returns displayed in the periods before and after the event can be interpreted as the contrary. In addressing these conflicting views, the analysis of share performance in relation to firm-specific, event-specific and non-event related factors proves useful. The findings in this part of the section explain that negative returns are due to increased uncertainty over the future of the company, the positive returns on announcement date are found to be strongly associated with the type of successor appointed. These findings further reveal market participants react significantly strongly to a CEO change as seen by high negative cumulative abnormal returns. These findings contextualize how the value attached to CEOs by market participants vary in relation to different conditions.
A research report submitted to The School of Accountancy, Faculty of Commerce, Law and Management, University of Witwatersrand in partial fulfilment of the requirements for the degree of Masters of Commerce in Accounting
Carolissen, Rhys (2016) An analysis of the effect of changes in chief executive officers on the share prices of JSE listed companies, University of the Witwatersrand, Johannesburg, <>