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Journal of Economics and Finance

, Volume 42, Issue 1, pp 138–154 | Cite as

CEO ability and firm performance: Stock market and job market reactions

  • Tarun Mukherjee
  • Huong Nguyen
Article
  • 298 Downloads

Abstract

Does the stock market and job market evaluate a CEO based on the performance of his/her previous employer? We answer this question by examining a sample of 48 CEOs who voluntarily resigned from old firms to obtain similar positions with new firms. Using a sample of CEOs that voluntarily resigned from S&P 500 firms during 2004–2012, we find that the stock market’s reactions to announcements of them resigning from old firms and being hired by new firms depend on how well the old firms had performed. The market is able to differentiate a “better” CEO from a “good” one by reacting more negatively when the former resigns and more positively when the former is hired by a new firm. Long-term performances of the firms that hire these executives are consistent with market expectations: the firms that hire the better-performing group are rewarded with significantly better long-term returns than the firms that hire the good-performing executives. It appears that the job market is at par with the stock market— the better group finds jobs much faster than the good group. We also find that better CEOs are more likely than good ones to have a Master’s (or higher) degree.

Keywords

CEO ability and performance CEO job market Stock market reactions to CEO voluntary resignations 

JEL Classification

G00 G30 M12 

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Copyright information

© Springer Science+Business Media New York 2017

Authors and Affiliations

  1. 1.University of New OrleansNew OrleansUSA
  2. 2.University of Mount OliveMt OliveUSA

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