Managerial Reputation in Financial and Labor Markets
49 Pages Posted: 9 Dec 2007 Last revised: 15 May 2010
There are 2 versions of this paper
Managerial Reputation in Financial and Labor Markets
Managerial Reputation in Financial and Labor Markets
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: Suggested Citation
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