Company price tag shifts caused by new CEOs

Abstract

Because conventional financial reporting failed to prevent savings and loans crisis of 1988, the market value concept became popular. To see if CEO changes affect “how much companies are worth if sold” Fortune 500 corporations were examined from 1997 to 2002. The findings show that companies with CEO changes see significant market value drops during the year of and especially year after CEO changes (i.e. when compared to benchmark) due to asset “write‐downs”. Yet, while there are no differences in market value shifts for the CEO change versus benchmark companies during the second and third years after CEO changes, asset reductions by new CEOs take place during their first and second years. The results suggest that executives looking for bargains on assets should target competitors with recent CEO changes, and new CEOs in their zeal to get clean slates should carefully liquidate “questionably productive” assets to prevent hostile takeovers.

Citation

Clark, A.B. (2004), "Company price tag shifts caused by new CEOs", Marketing Intelligence & Planning, Vol. 22 No. 2, pp. 216-227. https://doi.org/10.1108/02634500410525878