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CEO ability and firm performance: Stock market and job market reactions

Author

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  • Tarun Mukherjee

    (University of New Orleans)

  • Huong Nguyen

    (University of Mount Olive)

Abstract

Does the stock market and job market evaluate a CEO based on the performance of his/her previous employer? We answer this question by examining a sample of 48 CEOs who voluntarily resigned from old firms to obtain similar positions with new firms. Using a sample of CEOs that voluntarily resigned from S&P 500 firms during 2004–2012, we find that the stock market’s reactions to announcements of them resigning from old firms and being hired by new firms depend on how well the old firms had performed. The market is able to differentiate a “better” CEO from a “good” one by reacting more negatively when the former resigns and more positively when the former is hired by a new firm. Long-term performances of the firms that hire these executives are consistent with market expectations: the firms that hire the better-performing group are rewarded with significantly better long-term returns than the firms that hire the good-performing executives. It appears that the job market is at par with the stock market— the better group finds jobs much faster than the good group. We also find that better CEOs are more likely than good ones to have a Master’s (or higher) degree.

Suggested Citation

  • Tarun Mukherjee & Huong Nguyen, 2018. "CEO ability and firm performance: Stock market and job market reactions," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 42(1), pages 138-154, January.
  • Handle: RePEc:spr:jecfin:v:42:y:2018:i:1:d:10.1007_s12197-017-9390-1
    DOI: 10.1007/s12197-017-9390-1
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    More about this item

    Keywords

    CEO ability and performance; CEO job market; Stock market reactions to CEO voluntary resignations;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • M12 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - Personnel Management; Executives; Executive Compensation

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