The Death of Key Executives in Small Firms Effects on Investor Wealth

By Worrell, Dan L.; Davidson, Wallace N.,, III | Journal of Small Business Management, April 1989 | Go to article overview

The Death of Key Executives in Small Firms Effects on Investor Wealth


Worrell, Dan L., Davidson, Wallace N.,, III, Journal of Small Business Management


ABSTRACT: DECES DE CADRES CLE DANS LA PETITE ENTREPRISE:

IMPACT SUR LA SANTE DES INVESTISSEMENTS

Cette etude analyse l'impact sur le marche des valeurs, de ]'announce du di?cbs d'un cadre cle dans une compagnie vendant des actions au comptant. L'enqubte couvre une periode de dix-sept ans, allant de 1966 a 1982. Le enqueteurs ont applique'la methode Temps/ Evement mise au point par Fama, Fisher, Jensen et Roll. Les resultats montrent une reaction tr. Ls negative du marche.

Recently, there have been calls' to redirect research on turnover to focus on the consequences of individuals leaving organizations and also to establish closer working relationships between management and financial researchers.

One way to respond to these calls is to examine the effects of management turnover through key executives' deaths on investor wealth using the financial analysis tool of event time methodology. This method is relatively new to the study of turnover in organizations, but is especially suitable because the death of a key executive is usually an unanticipated event. As Beatty and Zaiac have noted, it is usually the case that, "inferring the reason for a CEO change is fraught with uncertainty, given that public announcements are often highly ambiguous or even totally uninformative."

To date, only two such interdisciplinary turnover investigations have been published.' Both involved large firms whose stock traded on the New York or American Stock Exchanges. Both studies reported that top executive death had little influence on the market for the population studied as a whole. They found, however, significant subsample differences. Johnson et al. reported that sudden senior corporate executive deaths had little systematic impact on stock returns, but founder death was associated with positive returns. This contrasts with Worrell et al., who found both sudden deaths of CEOs and founder status to be associated with negative returns. In addition, they also reported that, unlike this negative reaction to the announced deaths of the hands-on CEOs, the market reacted positively to the announcement of the deaths of corporate chairpersons.

RESEARCH ISSUES

The present study examines issues similar to those in Johnson et al. (1985) and Worrell et al. (1986), but it concentrates on turnover in smaller companies. Specifically, we examined the reaction of the stock market to the deaths of key executives( CEOs and/or chairmen) in companies whose stock trades over-the-counter (O.T.C.).

Smaller firms tend to have less division of labor than large firms, resulting in more reliance on the skills of a single key manager. For example, Vancil notes that the "solo mode" of top management organization is more common in smaller companies. Responsibility for major decision making typically lies with the solo key executive. This concentration of authority may mean that the small firm has no "heir apparent" with wide general management experience. The death of a key individual in a small firm may thus cause greater disrupfion in the firm's operation than a similar occurrence in a large firm.

Relatively little research has been performed on the financial consequences of turnover following key executive death. That which has been done dealt with large organizations and yielded conflicting results. The present study, therefore, must be considered exploratory. However, given (1) Price's observation "that turnover generally has a basically negative impact on effectiveness"; (2) Staw's proposition that the higher the level of the position to be filled, the greater the potential for disruption; and (3) the notion that a change in leadership in small firms may have as great (or greater) an impact as in large firms, it is possible to hypothesize that the death of a CEO or corporate chairman will have a negative impact on the stock prices of firms whose stock trades O. …

The rest of this article is only available to active members of Questia

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

(Einhorn 25)

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Note: primary sources have slightly different requirements for citation. Please see these guidelines for more information.

Cited article

The Death of Key Executives in Small Firms Effects on Investor Wealth
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Help
Full screen
Items saved from this article
  • Highlights & Notes
  • Citations
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

matching results for page

    Questia reader help

    How to highlight and cite specific passages

    1. Click or tap the first word you want to select.
    2. Click or tap the last word you want to select, and you’ll see everything in between get selected.
    3. You’ll then get a menu of options like creating a highlight or a citation from that passage of text.

    OK, got it!

    Cited passage

    Style
    Citations are available only to our active members.
    Buy instant access to cite pages or passages in MLA 8, MLA 7, APA and Chicago citation styles.

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

    "Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

    1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

    Cited passage

    Thanks for trying Questia!

    Please continue trying out our research tools, but please note, full functionality is available only to our active members.

    Your work will be lost once you leave this Web page.

    Buy instant access to save your work.

    Already a member? Log in now.

    Search by... Author
    Show... All Results Primary Sources Peer-reviewed

    Oops!

    An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.