Sudden top management turnovers and their effects on capital markets: Evidence from a country with low managerial discretion

  • Barbara A. Voußem
  • Cord H. Burchard
  • Utz Schäffer
  • Denis Schweizer
Part of the ZfB Special Issue book series (ZFB, volume 2/2013)


Top managers can impact company outcomes only to the extent that they possess discretion. Managerial discretion has been shown to differ among managers, companies, industries, and nations. In low discretion countries, corporate governance mechanisms, as well as national values and culture, can limit the range of actions available to managers and hence their individual impact on firm performance. We analyze the factors that constitute the low discretion environment in Germany, and show theoretically and empirically that the capital markets attribute little importance to individual top managers. To gauge manager influence, we use standard event study methodology and analyze stock price reactions around announcements of top management turnover. Our data sample consists of 344 top management turnovers (172 for CEOs, and 172 for CFOs) in companies listed on the German DAX and MDAX from 1998 through 2008. Our study aims to explain stock price reactions to management turnover in a low discretion environment. Contrary to studies conducted for high discretion countries, we find that, for low discretion countries, the standard factors for turnover classification (e.g., forced or routine turnover, insider or outsider succession) are not significant in explaining abnormal returns. We thus introduce another classification, the level of expectedness of top management turnover. We argue that this variable can better predict stock price reactions in this environment. If a turnover is unexpected, uncertainty will occur with the announcement and stock prices will fall temporarily. If a turnover is expected, prior existing uncertainty will be reduced as the probability of the announcement increases, leading to positive abnormal returns prior to the event date. This new variable can help resolve the inconclusive stock returns to management turnover that have been found in previous studies.


Management turnover Managerial discretion Stock market reaction Event study Turnover expectedness 


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Copyright information

© Springer Fachmedien Wiesbaden 2013

Authors and Affiliations

  • Barbara A. Voußem
    • 1
  • Cord H. Burchard
    • 1
  • Utz Schäffer
    • 1
  • Denis Schweizer
    • 2
  1. 1.Institute of Management Accounting and ControlWHU – Otto Beisheim School of ManagementVallendarGermany
  2. 2.WHU – Otto Beisheim School of ManagementVallendarGermany

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