An Analysis Of Market Reaction To CEO Turnover Announcement: The Case In Indonesia

Abstract

This paper investigates market reaction analysis to CEO turnover announcement in Indonesia. We are considering the succession factors: (1) the origin of successor (inside/outside firm) and (2) the process of succession (routine/non-routine). This paper aims to examine the market reaction of CEO turnover announcements. The samples consist of 59 firms from 1992 to 2003 and there was a t-test use to examining information content of CEO turnover announcements. The results show that market reacts positively to all CEO turnover announcements. The examination of the effects of succession process shows that market react positively to routine change, but do not react to non-routine change. Market also reacts positively to succession that leads inside candidate become a CEO, but the market give a mixed reaction when the successor come from outside firm. When the author combines the succession factors, we find the interesting result that market reacts favorably (positive) to routine change that leads the candidate from inside firm become a CEO. But market reacts unfavorably (negative) to routine change that leads candidate from outside become CEO. That’s mean the Indonesian investor prefer the smooth process in the succession, and they can reduce the uncertainty. Therefore we conclude that CEO turnover announcements have information content.