The Wealth Effects of Non-Senior Management Departures from Investment Banks

Autor: Yvette M. Bendeck, Edward R. Waller
Rok vydání: 1999
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Zdroj: Journal of Business Research. 46:95-105
ISSN: 0148-2963
DOI: 10.1016/s0148-2963(99)00060-0
Popis: This article analyzes excess returns to shareholders from announcements of senior and non-senior management departures from investment banks. Excess returns are negative for firms that lose non-senior managers, while no average stock price reactions are detected for firms that lose senior managers. The results are consistent with the hypothesis that departures of non-senior managers are associated with decreases in shareholder wealth. The results are also consistent with the hypothesis that the real effect from management changes confounds the information effect for senior management departures. Event study results reveal that losses from management departures are more adverse for firms with positive prior performance and firms with departing merchant bankers. Moreover, losses are more severe when firms with positive prior performance announce departures of non-senior merchant bankers. The average dollar value loss in firm value from non-senior management departures greatly exceeds average annual compensation of midlevel managers at investment banks. Excess returns are negative and significant for firms with departures of multiple managers and for departures from some less prestigious investment banks. However, differences in excess returns are not significant at the usual confidence levels for departures from more prestigous versus less prestigous investment banks. The results present new insight about whether the wealth effects of management departures reflect the release of previously private information about firm prospects. In particular, the results are consistent with the hypothesis that wealth effects of non-senior management departures from investment banks reflect a negative signal about future firm performance. The results also suggest that the market may anticipate losses signaled by management departures from poorly performing firms.
Databáze: OpenAIRE
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