Stock Market Liquidity and Short-Termism Driven CEO Turnover
58 Pages Posted: 1 Jul 2011 Last revised: 31 Oct 2017
Date Written: October 18, 2017
Abstract
Does an improvement in stock market liquidity cause the board of directors to become more short-term oriented? Improved liquidity may lead to enhanced market efficiency with more trading by informed blockholders (Maug, 1998). Hence, stock price would better reflect the fundamental values of the firm (Edmans, 2009), leading the firm to worry less about short-term performance. On the other hand, better liquidity would give transient institutional investors (Bushee, 1998) additional flexibility to unwind their position fast, which can result in heavier focus on short-term performance by both the CEO and the investors. Using the 2001 stock market decimalization as a natural experiment, we find that the CEO turnover of companies with higher transient institutional ownership became more myopic after increased liquidity in the market since 2001.
Keywords: CEO Turnover, institutional investors, transient institutions, dedicated institutions, short-termism, myopia, R&D, stock market decimalization, liquidity, attention
JEL Classification: G30, G34
Suggested Citation: Suggested Citation
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