Table 1.
Theoretical concepts and expected impact on shareholder reaction to CEO turnovers
| Theoretical concept | |
|---|---|
| Panel A: Direction of shareholder reaction | Expected direction |
| Shareholder wealth effect (Davidson et al., 1990) Signalling effects: the information component and the real component (Bonnier & Bruner, 1989) Internal monitoring mechanisms hypothesis (Denis & Denis, 1995) | Two alternative hypotheses: Positive reaction Negative reaction |
| Improved management hypothesis (Huson et al., 2004) Ability hypothesis (Baik et al., 2011; Chang et al., 2010; Murphy & Zábojník, 2004; Pessarossi & Weill, 2013) Common sense hypothesis (Grusky, 1963; Helmich, 1974; Allen et al., 1979; Dalton & Kesner, 1985; Kesner & Sebora, 1994) | Positive reaction |
| Scapegoat hypothesis (Boeker, 1992; Huson et al., 2004; Khanna & Poulsen, 1995) Vicious-circle theory (Grusky, 1960; Beatty & Zajac, 1987; Ishak & Latif, 2013) | Negative reaction |
| Panel B: Determinants of shareholder reaction | Expected impact |
| Operating performance | |
| Signalling effects – the information component (Bonnier & Bruner, 1989) | The company's operating performance before the event is worse than originally expected, the market reaction is negative |
| Signalling effects – the real component (Bonnier & Bruner, 1989) Internal monitoring mechanisms hypothesis (Denis & Denis, 1995) Improved management hypothesis (Huson et al., 2004) Ability hypothesis (Baik et al., 2011; Chang et al., 2010; Murphy & Zábojník, 2004; Pessarossi & Weill, 2013) Common sense hypothesis (Grusky, 1963; Helmich, 1974; Allen et al., 1979; Dalton & Kesner, 1985; Kesner & Sebora, 1994) | Negative relationship between operating performance before the event and the market reaction Investors expect improvements in operating performance after the event, the market reaction is positive |
| Company size | |
| Organizational structure hypothesis Reinganum (1985) Information asymmetry hypothesis (Miller & Rock, 1985) | Negative relationship between company size and the market reaction |
| Ownership | |
| State ownership concept (Pessarossi & Weill, 2013) | Positive relationship between state ownership and the market reaction |
| Panel B: Determinants of shareholder reaction | Expected impact |
| Expropriation hypothesis (La Porta et al., 2000) | Non-linear inverted U-shape relationship between blockholder ownership and the market reaction |
| Upper echelons theory – managerial ownership (Hambrick & Mason, 1984) | Non relationship between managerial ownership and the market reaction |
| Agency theory (Jensen & Meckling, 1976) | Managerial ownership may have a positive or negative impact on the market reaction |
| Managerial entrenchment hypothesis (Morck et al., 1988; Denis et al., 1997) | Negative relationship between managerial ownership and the market reaction |
| New-appointed CEO characteristics | |
| Improved management hypothesis (Huson et al., 2004) Ability hypothesis (Baik et al., 2011; Chang et al., 2010; Murphy & Zábojník, 2004; Pessarossi & Weill, 2013) | A quality of manager (managerial skills) may have a positive impact on the market reaction |
| Upper echelons theory – age (Hambrick & Mason, 1984) | Negative relationship between CEO age and the market reaction |
| Upper echelons theory – insider/outsider (Hambrick & Mason, 1984) | Insider/outsider CEO may have a positive or negative impact on the market reaction |
| Upper echelons theory – educational background (Hambrick & Mason, 1984) | The educational background of a CEO may have a positive or negative impact on the market reaction |
| Upper echelons theory – functional background (Hambrick & Mason, 1984) | The functional background of a CEO may have a positive or negative impact on the market reaction |
| CEO international experiences concept (Schmid & Dauth, 2014) | Nonlinear inverted U-shape relationship between international experiences of a CEO and the market reaction |
| Extended upper echelons theory – international experiences (Finkelstein et al., 2009) | The international experiences of a CEO may have a positive or negative impact on the market reaction |
| Extended upper echelons theory – past managerial experiences (Finkelstein et al., 2009) | Positive relationship between past managerial experiences of a CEO and the market reaction |
| Gender risk averse and overconfident hypothesis (Huang & Kisgen, 2013) | The gender of a CEO may have a positive or negative impact on the market reaction |
| Incumbent CEO characteristics | |
| Extended upper echelons theory – CEO tenure (Finkelstein et al., 2009) | The length of an incumbent CEO tenure may have a positive or negative impact on the market reaction (non-linear U-shape relationship) |
| Managerial entrenchment hypothesis (Morck et al., 1988) | Positive relationship between the duration of an incumbent CEO tenure and the market reaction |
Table 2.
Theoretical concepts and expected impact on shareholder reaction to changes in dividend policy (dividend initiation, omission, decrease, and increase)
| Theoretical concept | |
|---|---|
| Panel A: Direction of shareholder reaction | Expected direction |
| Dividend irrelevance theory (Miller & Modigliani, 1961) | Non effect on share prices |
| Dividend preference theory (‘bird-in-hand fallacy’) (Gordon, 1959, 1963; Lintner, 1956, 1962) | Positive reaction to dividend initiation and increase Negative reaction to dividend omission and decrease |
| Tax effect theory (Litzenberger & Ramaswamy, 1979) | Positive reaction to dividend omission and decrease Negative reaction to dividend initiation and increase |
| Clientele effect (Miller & Modigliani, 1961) | Two alternative hypotheses: Positive or negative reaction to changes in dividend payouts |
| Catering theory of dividends (Baker & Wurgler, 2004) | Two alternative hypotheses: Positive reaction or negative to changes in dividend payouts |
| Information content hypothesis (signalling content) (Watts, 1973) | Positive reaction to dividend initiation and increase Negative reaction to dividend omission and decrease |
| Pecking order theory (Myers, 1984) | Positive reaction to dividend initiation and increase Negative reaction to dividend omission and decrease |
| Prospect theory (Kahneman & Tversky, 1979) | Shareholder reaction to dividend omission (dividend decrease) is negative and stronger than investors' response to dividend initiation (dividend increase) |
| Panel B: Determinants of shareholder reaction | Expected impact |
| Company operating performance | |
| Signalling effects – the information component (Bonnier & Bruner, 1989) | Positive relationship between the company's operating performance and the market reaction |
| Company investment opportunities | |
| Company's life cycle concept (Mueller, 1972) Free cash flow theory (Jensen, 1986) | The lower investment opportunities, the stronger positive market reaction to dividend initiation (increase) The lower investment opportunities, the weaker negative market reaction to dividend omission (decrease) |
| Company leverage | |
| Pecking order theory (Myers, 1984) | The higher company leverage, the stronger positive market reaction to dividend initiation and increase The higher company leverage, the stronger negative market reaction to dividend omission and decrease |
| Company life cycle | |
| Company's life cycle concept (Mueller, 1972) | The lower stage of company's life cycle, the stronger positive market reaction to dividend initiation (increase) The higher stage of company's life cycle, the stronger negative market reaction to dividend omission (decrease) |
| Company size | |
| Information asymmetry hypothesis (Miller & Rock, 1985) | A stronger signalling effect in the small company than in the biggest one |
| Company ownership structure | |
| Agency theory (Jensen & Meckling, 1976) Free cash flow theory (Jensen, 1986) Entrenchment hypothesis and private benefits of control | There are several hypotheses. The ownership structure (concentrated and dispersed) may have an impact on the market reaction to dividend omission (decrease). |
| Market business cycle Market cycle concept (Below & Johnson, 1996) | The worse market performance the stronger positive market reaction to dividend initiation (increase) The better market performance the stronger negative market reaction to dividend omission (decrease) |
| Dividend yield Dividend yield concept (Pettit, 1992) | The greater change in dividend yield, the stronger signalling effects of dividend decision |
| Stock liquidity Informational effect of stock liquidity (Banerjee et al., 2007) | The highly liquid stocks, the lower signalling effects of dividend decisions. |
Table 3.
Theoretical concepts and expected impact on shareholder reaction to block trades
| Theoretical concept | |
|---|---|
| Panel A: Direction of shareholder reaction | Expected direction |
| Shareholder wealth effect: Restructuring hypothesis (Shleifer & Vishny, 1986) | Positive reaction |
| Shareholder wealth effect: Wealth expropriation hypothesis and private benefits of control (Dyck & Zingales, 2004) Entrenchment effect (Claessens et al., 2002) | Negative reaction |
| Signalling effects: Superior information hypothesis (Barclay & Holderness, 1989) | Two alternative hypotheses: Positive reaction Negative reaction |
| Panel B: Determinants of shareholder reaction | Expected impact |
| Share price | |
| Signalling effects: Superior information hypothesis (Barclay & Holderness, 1989) | Two alternative hypotheses: Blocks traded at a premium, the market reaction is positive Blocks traded at a discount, the market reaction is negative |
| Initiating party (by a buyer/seller) | |
| Signalling effects: Information effect (Close, 1975; Holthausen et al., 1987) | Two alternative hypotheses: Blocks initiated by a buyer, the market reaction is positive Blocks initiated by a seller, the market reaction is negative |
| Identity of a buyer/seller | |
| Signalling effects: Information effect Scholes, 1972; Bozcuk & Lasfer, 2005) | Two alternative hypotheses: A block purchase by an institutional investor, the market reaction is positive A block sale by a controlling shareholder, the market reaction is negative |
| Block size | |
| Signalling effects: Information effect (Scholes, 1972; Ball & Finn, 1989) | Two alternative hypotheses: A purchase of a large block, the market reaction is positive A sale of a large block, the market reaction is negative |
| Outside directors on board | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Positive relationship between the presence of outside directors and the market reaction |
| Debtholders | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) Free cash flow theory (Jensen, 1986) | Positive relationship between a presence of debtholders and the market reaction |
| Monitoring institutional investor | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Positive relationship between the presence of institutional investor and the market reaction |
| Legal institutions (e.g., legal environment, disclosure standards and enforcement) | |
| Monitoring incentive hypothesis (Dyck & Zingales, 2004) | The more efficient legal institutions, the higher market reaction |
| Extra-legal institutions (e.g., product market competition, public opinion pressure, internal policing through moral norms and labour as monitor, government as monitor through tax enforcement) | |
| Monitoring incentive hypothesis (Dyck & Zingales, 2004) | The more efficient extra-legal institutions, the higher market reaction |
| Managerial ownership | |
| Agency theory (Jensen & Meckling, 1976) | Positive relationship between a managerial ownership and the market reaction |
| Company size | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Two alternative hypotheses: Negative (positive) relationship between company size and the market reaction |
| Company profitability | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Two alternative hypotheses: Negative (positive) relationship between company profitability and the market reaction |
| Company risk | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Two alternative hypotheses: Negative (positive) relationship between company risk and the market reaction |
| Company ownership structure (concentrated structure) | |
| Monitoring incentive hypothesis (Barak & Lauterbach, 2012) | Two alternative hypotheses: Negative (positive) relationship between ownership structure risk and the market reaction |