By Dirk Schiereck *

(exechange) — March 1, 2019 — Is the Push-out Score, indicating whether a CEO’s departure is voluntary or forced by assessing a large amount of information, significantly influenced by a firm’s stock performance prior to the CEO change, and can it forecast the stock price afterward?

By empirically analyzing 327 CEO departures of the firms in the Russell 3000 index, we find a significant negative relationship between Push-out Scores and the stock returns over two years prior to the departures, indicating that the likelihood of a forced CEO departure is associated with the bad stock performance.

For Push-out Scores greater than or equal to 8, a very high negative abnormal return of about minus 40 percent could be observed.

Upon the announcement of CEO changes, high Push-out Scores are correlated with strong stock volatility, large trading volumes, and stock price decreases.

Nevertheless, Push-out Scores have no forecasting power for the following six-month stock performance.

We interpret this finding as an indicator that the reason for a CEO dismissal is not a safe bet on the future.

* The writer is a professor of Corporate Finance at the Technische Universität Darmstadt.

Editor’s note: This is a guest post.