University Report: Impact of Unexpected CEO Departure on Share Prices

This report investigates the impact of CEO departures on company share prices, examining the market's reaction to such events. The study delves into the significance of CEOs in determining company performance, profitability, and efficiency, and the subsequent effects of their unexpected departures. The report includes an abstract, literature review, methodology, data analysis, and conclusion. It explores hypothetical scenarios, empirical reviews, and conceptual frameworks, using quantitative data to analyze the relationship between CEO succession and stock prices. The analysis considers both the automobile and technology industries, comparing the impact of CEO departures on share prices. The findings, conclusions, recommendations, and suggestions for future work are presented. The report aims to provide a comprehensive understanding of the financial implications of CEO transitions.

Running head: DEPARTURE OF A CEO
Impact of Unexpected Departure of the CEO
Name of the Student:
Name of the University:
Author’s Note:

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Abstract
The current paper has the intention of creating an understanding of the impact that occurs on the
share price of the companies on the departure of the CEOs. The CEOs have played a significant
role and therefore their performance determines the extent of profitability and the efficiency of
the companies. The background of the paper has been helpful in the development of the
understanding of the performance of the companies and the effect departure of the CEOs have on
the share prices of the companies. The problem statement addresses the issues that are existent
with the help of which analysis can be made with the help of which analysis can move forward.
The literature review of the paper has been looking to address the issues that have been
highlighted by the other researchers. The methodology of the paper has highlighted the kind of
data that would be taken into account with the help of which analysis process can be understood.
The analysis that has been done has been competent in creating the result that was desired and
the results indicate that performance of the companies are impacted with the departure of the
CEOs.

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Table of Contents
Chapter 1: Introduction....................................................................................................................5
1.1 Background of the Study.......................................................................................................7
1.2 Statement of the Problem.......................................................................................................9
1.3 Research Aim.......................................................................................................................10
1.4 Research Objectives.............................................................................................................10
1.5 Research Question...............................................................................................................10
1.6 Research Hypothesis............................................................................................................10
Chapter 2: Literature review..........................................................................................................12
2.1 Introduction:........................................................................................................................12
2.2 Brief overview and hypothetical scenarios of the organisations:........................................12
2.2.1 Samsung:.......................................................................................................................12
2.2.2 Apple:...........................................................................................................................13
2.2.3 Volkswagen:.................................................................................................................13
2.2.4 Audi:.............................................................................................................................14
2.3 Background:.........................................................................................................................14
2.4 Impact on ex-ante day:.........................................................................................................14
2.5 Impact on announcement day:.............................................................................................15
2.6 Impact on ex-post day:.........................................................................................................16
2.7 Signalling:............................................................................................................................17

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2.8 Reactions of the shareholders:.............................................................................................18
2.9 Empirical review:.................................................................................................................19
2.10 Conceptual framework:.....................................................................................................27
2.11 Summary:...........................................................................................................................27
Chapter 3: Research Methodology................................................................................................29
3.1 Introduction..........................................................................................................................29
3.2 Justification of the selection of the methodology................................................................29
3.3 Research Philosophy............................................................................................................30
3.4 Research Approach..............................................................................................................30
3.5 Research Design..................................................................................................................31
3.6 Quantitative Data.................................................................................................................32
3.7 Kind of Data Used...............................................................................................................33
3.8 Data Collection Process.......................................................................................................33
3.9 Data Analysis Plan...............................................................................................................34
3.10 Ethical Consideration.........................................................................................................34
Chapter 4: Data Analysis and Discussion......................................................................................36
4.1 Introduction..........................................................................................................................36
4.2 Data Analysis:......................................................................................................................37
4.3 Findings:..............................................................................................................................53
4.4 Summary of the result..........................................................................................................57

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Chapter 5: Conclusion, Recommendation and Future Work.........................................................59
5.1 Conclusion...........................................................................................................................59
5.2 Addressing the objectives....................................................................................................61
5.3 Recommendation.................................................................................................................62
5.4 Future Work.........................................................................................................................62
Reference List................................................................................................................................64
Bibliography..................................................................................................................................74

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Chapter 1: Introduction
There has been several debates with respect to the existence and the role of the CEOs and
CFOs in the companies. The latest financial crisis and the criticism that has been given with
respect to the payment to the top level executives in the companies have led to the creation of the
question as to whether CEOs and CFOs are able to add in value to the organizations where they
work. It needs to be taken into consideration with respect to whether contributions to the CEO
and CFO towards the value of the shareholders is sufficient to offset the salaries that is earned by
the top level executives (Zhang and Qu 2016). This has been a question that has been very much
a general topic for several years. One of the way with the help of which investigation can be
done with the help of which the changes in the value of the company with respect to the change
in the CFO and the CEO can be determined. The financial theories recommends that the value of
a company is positively or negatively affected when the estimated cash flows of the company
may rise or decline or their systematic risks may rise or fall. This paper would therefore
concentrate on the relationship among the CEO succession and the reaction of the market
through the assessment of the force that leads to these changes.
The examination of the impacts of the top level management turnover and the
declarations of the succession events over the stock prices has been found to be a way to create
an insight into the fact that whether the top level management in an organization have an impact
on the performance of the companies (Quigley, Crossland and Campbell 2017). There have been
researches that have been undertaken earlier which have concentrated on the CEO. However,
along with the CEO, there are other executives as well who has a significant role to play in the
creation of key decisions for the company and these decisions are even likely to have an impact
on the performance of the companies. However, as the CEO is the main personnel for an

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organization, the research would be based on the CEOs and thereafter a comparison would be
made among various companies in order to have an idea about the impact departure of the CEO
have on the stock and shares of the company.
It is seen that most of the companies are not managed by the owners of the company or
the shareholders but by a leader like the CEO and even by the team of the other officers. The
CEO is known to be responsible to the shareholders of the company with the help of the elected
representatives who have been known to be the Board of Directors. The CEOs are primarily
accountable for the major choices of the firm policies, the strategy of the company and other kjey
decisions (Garg, Li and Shaw 2018). If the companies are able to survive the long enough, they
would automatically observe the succession. After various researches, the authors have not
discovered the consensus on the question whether the leaders would make a difference.
However, it has led to the creation of the focus on addressing the scenarios under which it is
more or less possible for the new CEOs to have an influence on the organizational results.
Therefore, succession of the CEO is the central issue in the organization theory. CEOs may be
known to be different with respect to the job of the CFOs but it is seen that most the CEOs have
the ability to replace the former. There have been several issues that had an impact on the
performance of the companies. It is seen that companies like Enron faced issues in the economy
mainly due to the accounting quality of the company (Randøy, Strøm and Mersland 2015).
Therefore, the role of the CEO has a significant role to play with the help of which the
accounting decisions and quality can be maintained with the help of which better performance
can be attained. Hence, this research would look to assess and discover the impact of the
departure of the CEOs on the stock prices of the companies.

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1.1 Background of the Study
There are thousands of employees who are working in various companies and many of
them are senior management leaders. It is vital to create and understanding of the dynamics that
are associated with the changes in the top leaded and the impact on the senior management
teams. The companies that are functioning in the economy acts as a sociological aspect and
therefore any kind of issues and problems in efficient management can lead to issues and
problems that are social in nature as many employees are employed in these companies (Driver
and Guedes 2017).
Any kind of disruptions and loss of jobs for the local community or reduction in the level
of services to the citizens of the region would lead to dissection among the community. It is seen
that CEOs have a key role to play in the development of a company. The other essential aspect of
the company has been the movement of their share prices. The movement of the share prices of a
company in the market would determine the extent of efficiency and the performance of the
companies. The positive share price motivates the investors to undertake investment in a
company. However, it is seen that the role of the CEO is some way related to the movement in
the share price as well as it is seen that the performance of the companies is on the basis of the
decisions and the plans and policies that have been constructed by the management and the CEO.
The departure of the CEO as well as the succession of a CEO can therefore have an impact on
the share price as well. Krenn (2017) addressed the fact that each personnel have their own style
of managing a business and therefore once there is a change in the management, it would have an
impact on the operational activity as well on the brand image of the company.
There have been several researches that have been undertaken that is useful for the
development of an idea with the help of which better results can be undertaken. Most of the

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researches have determined the fact that there are significant amount of impact on the
performance of the shares once there has been a change in the CEO. The changes can be either
positive or negative in nature. The change would be dependent on the traits of the earlier CEO
and the CEO who has succeeded in the company. It is due to this fact that assessment on this
topic becomes vital (Harjoto, Laksmana and Lee 2015). It is even seen that management style
and the leadership skills of the CEO plays a fundamental role with the help of which better
performance for the companies can be ascertained.
The other impact that the CEOs have on the performance of the companies have been the
turnover rate in the companies. The extent of turnover is dependent on the level of motivation
that is existent among the employees due to the policies and the plans that have been
incorporated by the company. When a company has satisfied employees, the degree of
performance and the quality of performance becomes better (Demirtas and Simsir 2016). On the
other hand, dissatisfied employee would determine that the performance of the company is not
efficient and therefore this would have an impact on the performance and therefore would have
an impact on the share prices as well.
The extent of change in the share price is dependent on various factors and one of them
has been the impact of the CEO. There are several instances where it is seen that image of the
CEO addresses the share price of the stocks. The investors as well as the shareholders look
determine the image of an organization on the basis of the image of the CEO. Hence, there has
been vast changes in the share prices once a CEO retires or expires and a new CEO is coming in
that position (Bouaine et al. 2015). In case the transition is managed in an effective manner, then
the chances of negative results become low and in case the transition is not effective then it may
lead to the negative results.

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The aspects of stress, fear and the transformations that are taking place at the time of the
organizational transition are some of the essential elements that are seen within the organization.
The management of ambiguity and the aspect of staying flexible and being agile are the
characteristics that would help the senior managers to effectively work at the time of the scenario
when transition of a new CEO is taking place. Therefore, it can be stated that this topic is an
essential one and research on the same in the current time period would be helpful in the
determination effect on the share price with the departure of a CEO. In this paper, analysis and
comparison would be done by taking two companies from the automobile industry and two
companies from the technological industries (Wang and Yang 2015). A comparison and
assessment would be done in order to find out the changes it can take place. The companies and
their share prices that have been taken into consideration in this paper are Apple Inc and
Samsung for technology industry and Volkswagen and Audi from the automobile industry.
1.2 Statement of the Problem
In the current time period, it is seen that external finance from the market and the
economy has a fundamental role to play and therefore most of the companies issue shares in
order to collect money from the market. It is due to this fact that movement of the share prices
have a key role to play with the help of which better performance of the company can be
understood. One of the factors that have an impact on the performance of the shares of a
company has been the traits and the departures of the CEO (Lim and Love 2017). CEO being the
top of the management has the responsibility to take all the decisions related to the company and
therefore departure of the CEO would have an impact on the share as well. It is due to this fact
that research on this topic would be done with the help of which changes in the share price of the
selected companies would be determined.

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1.3 Research Aim
The aim of the research has been the aspect and the agenda that would be taken into
consideration with the help of which better results in accordance to the topic can be understood.
Hence, aim of the topic has been to determine how the departure of a CEO of a company has an
impact on the prices of the shares.
1.4 Research Objectives
The objectives are constructed on the basis of the aim of the research and therefore the
objectives of the research has been given as follows:
 Determining the reaction of the market with respect to the departure of a CEO towards a
company
 Ascertaining the level of change in the stock price with the departure of a CEO of a
company
1.5 Research Question
The research question would constitute of the questions that would be answered with the
help of which completion of the paper is possible. Therefore, the research question in accordance
to this topic has been given as follows:
Q1. How does the market react to the announcement of a CEO departing from a company?
Q2. How does the departure of a CEO have an impact on the share prices of a company?
1.6 Research Hypothesis
The hypothesis constitutes of the elements that has to be answered by the company. The
hypothesis of the research has been given as follows:

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Hypothesis 1:
Null hypothesis (H0): The average close prices of ‘Apple’ after and before of medical leave of
CEO are equal.
Alternative hypothesis (HA): The average close prices of ‘Apple’ after and before medical leave
of CEO are unequal.
Hypothesis 2:
Null hypothesis (H0): The average close prices of ‘Samsung’ after and before of resignation of
CEO are equal.
Alternative hypothesis (HA): The average close prices of ‘Samsung’ after and before recognition
of CEO are unequal.
Hypothesis 3:
Null hypothesis (H0): The average close prices of ‘AUDI’ after and before arrest of CEO are
equal.
Alternative hypothesis (HA): The average close prices of ‘AUDI’ after and before arrest of CEO
are unequal.
Hypothesis 4:
Null hypothesis (H0): The average close prices of ‘Volkswagen’ after and before removal of
CEO are equal.
Alternative hypothesis (HA): The average close prices of ‘Volkswagen’ after and before removal
of CEO are unequal.