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Efficient Labor and Capital Markets: Evidence from CEO Appointments

Author

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  • James Ang
  • Beni Lauterbach
  • Joseph Vu

Abstract

An examination of 268 CEO appointments in US firms indicates that, on average, appointment of a better-quality CEO (a CEO who receives a pay premium ex-ante) is accompanied by an immediate positive revaluation of stock prices, and is followed by an improvement in firm performance. This evidence supports the notion of jointly efficient and integrated labor and capital markets. The findings are particularly strong in non-regulated industries. The managerial labor market appears somewhat less efficient in internal successions, and the stock market appears less efficient or only relatively weakly integrated with the labor market in small firm appointments.

Suggested Citation

  • James Ang & Beni Lauterbach & Joseph Vu, 2003. "Efficient Labor and Capital Markets: Evidence from CEO Appointments," Financial Management, Financial Management Association, vol. 32(2), Summer.
    • Handle: RePEc:fma:fmanag:angetal03
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    Cited by:

    1. Alain Finet & Réal Labelle, 2004. "Les facteurs de changement des dirigeants:une étude empirique sur le NASDAQ," Revue Finance Contrôle Stratégie, revues.org, vol. 7(2), pages 233-251, June.
    2. Allgood, Sam & Farrell, Kathleen A. & Kamal, Rashiqa, 2012. "Do boards know when they hire a CEO that is a good match? Evidence from initial compensation," Journal of Corporate Finance, Elsevier, vol. 18(5), pages 1051-1064.
    3. Brian L. Connelly & Qiang (John) Li & Wei Shi & Kang‐Bok Lee, 2020. "CEO dismissal: Consequences for the strategic risk taking of competitor CEOs," Strategic Management Journal, Wiley Blackwell, vol. 41(11), pages 2092-2125, November.
    4. Greg Filbeck & Raymond F. Gorman & Xin Zhao, 2010. "Identifying the best companies for leaders: does it lead to higher returns?," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 31(1), pages 19-31.
    5. Hadem, Michael, 2010. "Bedingungen und Konsequenzen des Wechsels von Finanzvorständen - Eine Analyse in großen börsennotierten Unternehmen," EconStor Theses, ZBW - Leibniz Information Centre for Economics, number 43681, March.
    6. Khallaf, Ashraf & Skantz, Terrance R., 2015. "R&D productivity following first-time CIO appointments," International Journal of Accounting Information Systems, Elsevier, vol. 16(C), pages 55-72.

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