The effect of CEO departure on target firms' post-takeover performance: Evidence from not-delisting target firms

Using a sample of target firms that do not delist from the stock market after a majority takeover, we investigate the effect of the target CEO's departure on their firms' subsequent financial performance. We find that CEO departures have a positive effect on the target firms' long-run operating performance, measured by firms' operating return on assets and return on equity. However, we do not find a significant effect of CEO turnover on target stock returns in the post-takeover period. These results are consistent with the predictions of the inefficient management hypothesis, which contrast with those of the valuable management hypothesis.