Abstract
Using a comprehensive CEO medical leave dataset, we find that prior firm performance is an important determinant of CEOs’ return to their position at the firm. Firms continue to experience superior performance measured by raw returns, market-adjusted returns, and industry-adjusted returns after the return of outperforming CEOs, reaffirming the performance-driven career outcome for medical leave CEOs. We also find that shareholders generally respond negatively to medical leave news while CEO age and prior performance significantly affect stock price reactions to the news. Shareholders respond more negatively to the return of older CEOs and CEOs with extended medical leave. Shareholders react more positively to the return of outperforming CEOs. Investors respond more negatively to CEO exit news if preceding medical leave news indicated an expected CEO return. We also find that the return of CEOs and duration of medical leave are negatively associated with ex-post abnormal returns or alphas using the CAPM model.
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