TY - JOUR
T1 - The value relevance of top executive departures
T2 - Evidence from the Netherlands
AU - Cools, Kees
AU - Mirjam van Praag, C.
PY - 2007/12/1
Y1 - 2007/12/1
N2 - On theoretical grounds, monitoring of top executives by the (supervisory) board is expected to be value relevant. The empirical evidence is ambiguous and we analyze three non-competing explanations for this ambiguity: (i) The positive effect on firm value of board monitoring is hidden in stock price effects due to the simultaneous occurrence of the positive real effect of monitoring and the opposing information effect. (ii) The combination of board monitoring and monitoring by other parties prevents assessing the value relevance of board monitoring in isolation. (iii) The confounding effect of a simultaneous successor appointment typically generates an upward biased estimate. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991-2000).
AB - On theoretical grounds, monitoring of top executives by the (supervisory) board is expected to be value relevant. The empirical evidence is ambiguous and we analyze three non-competing explanations for this ambiguity: (i) The positive effect on firm value of board monitoring is hidden in stock price effects due to the simultaneous occurrence of the positive real effect of monitoring and the opposing information effect. (ii) The combination of board monitoring and monitoring by other parties prevents assessing the value relevance of board monitoring in isolation. (iii) The confounding effect of a simultaneous successor appointment typically generates an upward biased estimate. Based on an analysis of price effects and trading volumes at announcement, we conclude that monitoring by the supervisory board is valued by investors: Forced departures of executive directors, also without a successor appointment, are value relevant in the Netherlands where external control mechanisms and shareholder control were virtually absent in the period studied (1991-2000).
KW - Corporate governance
KW - Dismissal
KW - Internal monitoring
KW - Top management departure
KW - Value relevance
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U2 - 10.1016/j.jcorpfin.2007.04.012
DO - 10.1016/j.jcorpfin.2007.04.012
M3 - Article
AN - SCOPUS:36348978664
SN - 0929-1199
VL - 13
SP - 721
EP - 742
JO - Journal of Corporate Finance
JF - Journal of Corporate Finance
IS - 5
ER -