Managerial Reputation in Financial and Labor Markets

49 Pages Posted: 9 Dec 2007 Last revised: 15 May 2010

See all articles by Yuk Ying (Candie) Chang

Yuk Ying (Candie) Chang

Massey University

Sudipto Dasgupta

Chinese University of Hong Kong, ABFER, CEPR, and ECGI

Gilles Hilary

Georgetown University - Department of Accounting and Business Law

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2008

Abstract

We investigate whether the financial market's reaction to managerial departure announcements reflects managerial reputation and whether this reaction is related to the manager's subsequent labor market progress and firm performance. We show that abnormal stock returns around the announcement of a manager's departure are negatively related to the prior performance of the firm under that manager. Abnormal returns are also negatively related to the manager's pay relative to the pay of the other four highest paid executives at his previous employer. The market reaction around the time of departure announcement, prior performance and relative pay predict the manager's subsequent labor market progress. These results are consistent with the idea that managers develop parallel reputations in financial and labor markets. Finally, we show that the market's perception of managerial ability is consistent with the subsequent performance both of the firm that loses a CEO and of the firm that hires the departing CEO as a new manager.

Keywords: ability, reputation, labor market, compensation, governance

JEL Classification: G34, J24, J33

Suggested Citation

Chang, Yuk Ying and Dasgupta, Sudipto and Hilary, Gilles, Managerial Reputation in Financial and Labor Markets (December 1, 2008). Available at SSRN: https://ssrn.com/abstract=1066721 or http://dx.doi.org/10.2139/ssrn.1066721

Yuk Ying Chang

Massey University ( email )

Palmerston North
New Zealand

Sudipto Dasgupta (Contact Author)

Chinese University of Hong Kong, ABFER, CEPR, and ECGI ( email )

CUHK, Cheng Yu Tung Building, Room 1224
Shatin, NT
Hong Kong
Hong Kong

Gilles Hilary

Georgetown University - Department of Accounting and Business Law ( email )

McDonough School of Business
Washington, DC 20057
United States

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