Do Directors Respond to Stock Mispricing? Evidence from CEO Turnovers

Jim Goldman

Journal of Financial and Quantitative Analysis, 2023, vol. 58, issue 6, 2732-2751

Abstract: This article examines whether and how stock mispricing can affect the probability of CEO turnover. In a sample of 1,573 US public firms, I find that, after controlling for fundamental performance, a 1-standard-deviation negative uninformative stock price shock increases the likelihood of CEO turnover by 10%. The mispricing-turnover sensitivity is stronger at firms with an independent board, and a difference-in-difference analysis further supports that finding. Ancillary results suggest that independent directors’ career concerns may play a role in the response of independent boards to mispricing.

Date: 2023
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