The effect on short-term stock returns of the gender of a new CEO or a fired CEO
A thorough review of various disciplines’ literature suggests inherent cognitive biases exist. This paper examines the impact these behaviors have on individual security prices when a CEO is either appointed or terminated. The various ‘signals’ a firm sends out to investors by its action will be analyzed as well; both in an attempt to measure correlation between the event and the equity price.
Data/Methods:
This study will examine the terminations or appointments of CEOs for U.S. listed publicly traded companies between January 2010 and December 2012. The data will be screened to eliminate firms that had other significant events during the study period. Finally, firms will be sample matched based upon both market capitalization and industry and paired by gender.
Firms will be selected according to the screens listed above and individual event-studies will be conducted on the sample firms. Then they will be sorted according to gender and activity (terminated versus appointed.) The individual studies will attempt to measure abnormal market returns over a 5-day pre-announcement and 5-day post announcement period by utilizing OLS Regression to predict what market returns should be, and then subtracted against what actual daily returns occurred during that same period. This is also known as a Single Index Market Model (SIMM).
Once the abnormal returns are calculated and sample matched with CEOs of differing sex, the results will be grouped according to both gender and announcement (appointed or terminated.) Abnormal returns for both groups will be averaged and a mean will be created. The means will be analyzed using a two-sample t-test.
Expected Results:
This study has two null-hypotheses. Current literature is inconclusive as it relates to the study.
H1: There is no significant relationship between stock returns and the gender of a new CEO.
H2: There is no significant relationship between stock returns and the gender of a fired CEO.
Discussion:
The impact of gender on business performance continues to gain importance as women make upward movements in the business community. Despite the increase toward parity, a large gender divide still exists at the highest level of management - Chief Executive Officer and boardroom participation. By asking the question “do investors perceive the gender of the CEO to be an important characteristic as it relates to cumulative abnormal market returns?,” this paper attempts to capture both the quantitative realities of market performance and the qualitative (behavioral) biases that exist within the market.