Explaining Bi-Directional Spillovers from the Same Event: Theory and Evidence from CEO Deaths

Abstract

In this study, we unpack why a single event affecting a focal firm may be expected to have opposing spillover effects to other related firms. We contextualize our theorization and our specific hypotheses by focusing on how the sudden death of a CEO triggers spillover effects onto other listed firms. We contrast the positive spillover predictions based on competitive interdependence with negative spillover predictions based on entitativity perception due to category similarity. In particular, we examine three key dimensions that may generate both positive and negative spillover effects – size similarity, geographic proximity, and demographic similarity of CEOs. We test our predictions by examining investor reactions of 54,819 firms to the 49 sudden deaths of CEOs between 1993 and 2016. Our results indicate that both spillovers co-exist. Theoretical implications are discussed.