Abstract

This paper investigates changes in company performance following timely versus delayed CEO resignations after violations of financial wrongdoings. A resignation is considered timely if it is proactively pushed by the company, and delayed if it is driven by investigations initiated by SEC or other regulatory authorities. To date there are very few studies investigating the resignations of CEOs with financial wrongdoings and none that differentiate between timely versus delayed resignations. Our results show significant negative abnormal returns following announcement of CEO resignations. In addition, compared to timely resignations, the negative stock market reaction is larger and longer lasting for delayed resignations. This suggests that CEO resignations due to financial wrongdoings are not perceived as good news by investors, and the delayed resignations could make investors lose more confidence possibly because of worries about the ineffective corporate governance and supervision mechanism. Using a hand-collected dataset, this paper examines what factors may potentially influence the timeliness of CEO resignations and finds a significant negative correlation between CEO-chairman duality and the timeliness of CEO resignations. Moreover, this paper investigates the time-series patterns and within-firm differences in performance for up to three years around CEO resignations. Our results suggest a significant drop in the market-to-book ratio upon CEO resignations which coincides with findings of our event study.