The Stock Market Reaction to Board Changes: The South African Experience

Abstract

This article investigates the impact of board changes on the share prices of the companies listed on the Johannesburg stock exchange (JSE) during the period 2004–2008. Four types of board changes are investigated: new appointments, resignation, retirement and joint appointments. Market participants consider a change in the composition of a company’s board as having information content and produce statistically significant change in the share prices of the company concerned. In particular, the informational effects of new appointments are perceived differently by the market from resignations from the company board. The results also provide evidence that market reacts more favourably to the appointment of an executive director in comparison to that of a non-executive director board appointment. JEL classification: C58, D22, E44, G10, L22