Effect of a CEO's age on the financial legitimacy of a Johannesburg Stock Exchange listed organisation

Abstract

This research report evaluates the effect of CEO age in relation to an organisation’s financial legitimacy in respect of 110 Johannesburg Stock Exchange listed organisations for the 2016 period. This quantitative based research report, evaluates an investor’s propensity for risk and financial legitimacy through the assessment of variables relating to 1] behavioural science; 2] financial performance and 3] market reaction. Consistent with prior research, it’s hypothesised that organisations with older CEOs are less likely to experience financial statement restatements and volatility in the share price. Contrary to prior American based research, the results of this research infer that the alternative hypothesis holds true i.e. that within a South African listed context, CEO age is statistically insignificant in relation to an organisations financial legitimacy. Results of this research report shows the alternative hypothesis holds true i.e. CEO age is insignificant in relation to financial statement restatements. Furthermore return on assets [variable ROA, P-value <0.05 i.e. 0.0006*] and company age [variable CoAge, P-value <0.05 i.e. 0.0372*] are both significant variables in relation to evaluating the share price volatility in respect of South African based listed organisations. The results therefore affirms that investor confidence is entrenched in an organisation’s financial legitimacy which is largely dependent on 1] financial performance [ROA] and 2] going concern [ROA and CoAge].