Abstract
This paper analyzes market reaction to CEO turnover announcements in the presence of information asymmetry. Using hand-collected data of 750 CEO turnover announcements made between 2004 and 2014, I find that the market reaction to a turnover announcement depends on the type of turnover and the level of asymmetric information between the firm and its investors. If the type of turnover is forced, the market reaction is negatively related to the level of asymmetric information. If the type of turnover is voluntary, the market reaction is weakly positive and does not depend on the level of asymmetric information. I also find that in case where information asymmetry is high, companies attempt to present forced turnover as voluntary and this behavior leads to a less negative market response. Overall, my results suggest that firms act strategically when disclosing information on CEO turnover to avoid a negative market reaction.
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