Abstract
This paper examines the impact of corporate governance on the announcement effect of CEO turnover. Using 567 CEO turnover announcements of Korean firms from 2006 to 2010, we find evidence that CEO turnover has a significant negative effect on the firm value. In particular, firms that are not affiliated with a business group (chaebol) experience significantly negative stock returns surrounding the CEO turnover. We find lower stock return declines surrounding the CEO turnover for firms with higher ownership concentration on the dominant shareholder. This suggests that high level of ownership concentration works in favor of shareholders’ wealth regarding the CEO selection. For chaebol-affiliated firms, we find no significant effect of ownership concentration on the announcement returns of CEO turnover. In sum, our evidence suggests that corporate governance is effective in an emerging market but does not fully prevent the opportunistic behavior of strong indigenous management of business groups.
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