This study is to investigate corporate governance issues relating to effectiveness of the board of directors. We try to answer whether the boards play their role to oversee CEOs and replace those managers who perform poorly and also to answer if the boards are well-prepared for CEO succession after good-performed CEOs leave.. We adopt event-study methodology to discover CEO turnover effects of Taiwan listed sample firms during year 2007 through 2011 period. This paper first studies the overall viewpoint of the stock market to CEO turnovers and then tries to test if corporate operating performance prior to CEO turnovers, tenure of ex-CEO, whether the ex-CEO leaves the corporate, shareholding percentage of ex-CEO, shareholding percentage of directors and the percentage of independent directors seats influence the announcement effects of CEO turnover. We discover that financial performance prior to CEO turnover year is negative significantly related to cumulative abnormal returns (CARs). That is, stock market reacts positively to CEO turnover announcement of poorly-performed firms, reacts negatively to CEO turnover announcement of well-performed firms. Second, CEO tenure period strengthen this negative relationship between CEO turnover and CARs. That is, when ex-CEOs with longer tenure years, stock market reacts more positively to CEO turnover announcement of poorly-performed firms and reacts more negatively to CEO turnover announcement of well-performed firms. Third, especially for CEO turnover announcement of poorly-performed firms, market reacts more positively to CEO turnover announcement if ex-CEOs leave firms (vs. still stay at firm). Finally, independent directors' percentage of board seats is negatively to CARs of CEO turnover. The evidence shows the market does not believe that independent directors play a value-enhancing role in CEO turnover decisions.
Annual International Conference on Accounting & Finance, 128-134