Shareholder wealth reaction to officer leave of absence announcements

Abstract

PurposeThis paper seeks to explore empirically the shareholder reactions to an officer leave of absence (OLOA) announcement.Design/methodology/approachA standard event study methodology is applied to daily stock holding period returns. The sample studied consists of 104 firms announcing an OLOA and is further delineated by both reasons offered and the title of the officers in the event. A cross‐sectional analysis is used to study the reactions found.FindingsThe paper documents a statistically significant negative response from shareholders: a 4.9 percent mean loss across 104 firms in the sample. Cross‐sectional results indicate that board independence and the passage of the Sarbanes‐Oxley Act of 2002 (SOX) influence abnormal returns.Practical implicationsThe evidence in this study clearly suggests the value‐relevance of the OLOA announcements. Therefore, a thorough understanding of the impact of OLOA announcements on firm value is important to investors.Originality/valueEvent studies of management turnover primarily focus on the event of formal executive turnover per se and largely ignore events of temporary turnovers. This paper examines market response to OLOA (a corporate event that may precede permanent management turnover). It uncovers varied significant market reactions. Some insignificant results in prior event studies may be partially explained by information released through preceding events of temporary turnovers.