Hiring a New CEO Can Create Volatility in a Company’s Stock

SALT LAKE CITY--()--When a new CEO is installed at a company, investors often feel shockwaves.

As the new company leader learns the ropes of his or her new job, stockholders watch closely. If they don’t feel confident in the new leader’s ability, they often behave differently from how they would with a previously established leader. That can lead to big consequences at publicly traded corporations.

Yihui Pan, assistant professor of finance, explores those behavior changes and shockwaves in the paper she co-authored, “Learning about CEO Ability and Stock Return Volatility.” The paper has been accepted in the Review of Financial Studies.

“Any manager’s ability to do a new job is, to some extent, unknown. The uncertainty about his ability could be related to his innate talent or the quality of the match between the job and his personality, skills, or strategic vision,” Pan said. “This uncertainty about management ability could stir up stock return volatility, which reduces as investors learn about management ability to create value, especially when the manager is a highly visible one like a CEO.”

The co-authors of the paper are Tracy Yue Wang and Michael S. Weisbach.

To listen to a podcast of Pan detailing her research, and a full written transcript, visit http://eccles.link/1DTiT8G.

About the David Eccles School of Business

Founded in 1917 in Salt Lake City, the David Eccles School of Business offers eight undergraduate majors, four MBAs, five other graduate programs, a PhD program, and executive education offerings. The Eccles School operates the country’s largest student-run venture capital fund with $18.3 million. It is home to the Lassonde Entrepreneur Institute and Sorenson Center for Discovery and Innovation. Approximately 4,500 students are enrolled in its undergraduate, graduate and executive degree programs. For more information, visit business.utah.edu or call 801-581-7676.

Contacts

David Eccles School of Business
Pete Codella, 801-587-8365
pete.codella@eccles.utah.edu
or
Method Communications
Jeff DuBois, 801-461-9789
jeff@methodcommunications.com

Contacts

David Eccles School of Business
Pete Codella, 801-587-8365
pete.codella@eccles.utah.edu
or
Method Communications
Jeff DuBois, 801-461-9789
jeff@methodcommunications.com