Shareholder perceptions of the changing impact of CEOs: Market reactions to unexpected CEO deaths, 1950–2009



Research summary: Despite a number of studies highlighting the important impact Chief Executive Officers (CEOs) have on firms, several theoretical and methodological questions cloud existing findings. This study takes an alternative approach by examining how shareholders' perceptions of CEO significance have changed over time. Using an event study methodology and a sample of 240 sudden and unexpected CEO deaths, we show that absolute (unsigned) market reactions to these events in U.S. public firms have increased markedly between 1950 and 2009. Our results indicate that shareholders act in ways consistent with the belief that CEOs have become increasingly more influential in recent decades.

Managerial summary: With Chief Executive Officers (CEOs) facing increased scrutiny and receiving ever-increasing pay packages, substantial debate exists about their overall contribution to firm outcomes. While prior research has sought to calculate the proportion of firm outcomes attributable to the CEO, this study takes an alternative approach by using the “wisdom of the crowds” to assess how shareholders think about the importance of CEOs. Our study finds that shareholders, perhaps the most financially motivated stakeholder, view CEOs as increasingly important drivers of firm outcomes, good and bad, versus their peers from decades earlier. Notably, market reaction to the unexpected death of a CEO has increased steadily over the last six decades, highlighting the importance of succession planning and supporting, at least partially, the increased compensation given today's top executives. Copyright © 2016 John Wiley & Sons, Ltd.