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Are Generalists Beneficial to Corporate Shareholders? Evidence from Exogenous Executive Turnovers

Published online by Cambridge University Press:  24 October 2018

André Betzer Open the ORCID record for André Betzer [Opens in a new window] ,
Hye Seung (Grace) Lee ,
Peter Limbach  and
Jesus M. Salas
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Abstract

This study finds a positive, economically meaningful impact of generalist chief executive officers (CEOs) on shareholder value using 164 sudden deaths and 345 non-sudden exogenous turnovers. The higher a departing CEO’s general ability index (GAI), independently and relative to her successor, the lower is the abnormal stock return to turnover announcements. Returns reflect post-turnover changes in operating performance. Further, CEOs’ and successors’ GAIs are significantly positively related, but only for non-sudden turnovers. Consistently, for sudden deaths, we find positive stock returns to appointments of generalist successors. The results provide a market-based explanation for the generalist pay premium.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 55 , Issue 2 , March 2020 , pp. 581 - 619
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We thank an anonymous referee, Irem Demirci, Paul Malatesta (the editor), Daniel Metzger, Martin Ruckes, Markus Schmid, Meik Scholz-Daneshgari, Florian Sonnenburg, and Daniel Urban as well as seminar participants at Lehigh University, participants at the 2015 Annual Meeting of the German Finance Association in Leipzig, participants at the 2016 Conference of the Swiss Society for Financial Market Research in Zurich, and participants at the 2018 Annual Baruch-Fordham-Rutgers Accounting Conference for very helpful comments. We further thank Cláudia Custódio and Tim Quigley as well as Dirk Jenter, Florian Peters, and Alexander Wagner for graciously sharing data with us. Part of the paper was written while Limbach was with the Karlsruhe Institute of Technology.

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