Abstract
In the decade between years 2001 – 2011 Kenya experienced change of CEOs of listed firms through dismissal, resignation and retirement which created a need to establish whether CEO departure events had a significant influence on stock returns and profitability of the affected firms. In this research 9 CEO departure events 3 dismissal, 3 retirement and 3 resignation events were analyzed. Abnormal stock returns were computed by employing the market model and profitability of the affected listed firms was measured by employing return on assets (ROA). Paired samples t-test was employed to examine whether there was a significant difference in the abnormal returns and profitability (ROA) during pre and post CEO departure period. The findings indicated that there was no significant difference in abnormal stock returns and profitability in the pre and post CEO departure events. The findings implied that NSE investors were not excited by change of CEOs and that the NSE is semi strong form efficient.
Highlights
Background of the StudyKenyan listed companies have in the recent years experienced CEO departures due to various reasons including poor financial performance of the companies that they manage
This implied that the null hypothesis of lack of significant difference in abnormal returns during pre and post CEO departure events was not rejected
This implied that the null hypothesis of lack of significant difference in return on assets (ROA) in the pre and post CEO departure events was not rejected
Summary
Kenyan listed companies have in the recent years experienced CEO departures due to various reasons including poor financial performance of the companies that they manage. This research focused on analyzing the profitability and stock performance of Kenyan listed companies during pre and post CEO departure events. CEOs are known to possess various types of power to enable them steer firms in the right direction including: legitimate power of being influential by virtue of the senior positions in firms. CEOs possess expert power of having technical information or specific and unique skills that are respected. Some CEOs possess coercive power and are able to discourage undesired actions of others. Referent power enables CEOs to use their strong interpersonal skills, charm, attractive personality and charisma to influence others positively (Schepker, 2012; Gonglaves, 2013)
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