Turnaround specialists and firm performance /
Considerable attention has been placed on internal monitoring mechanisms and their role in the turnover of the top management. Arguably one of the most important functions of the board of directors is to identify and hire suitable replacement managers, and the quality of the board's decision i...
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| Format: | Thesis Book |
| Language: | English |
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[Place of publication not identified] :
[publisher not identified] ;
2002.
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| Online Access: | http://proxy.library.tamu.edu/login?url=http://proquest.umi.com/pqdweb?did=765051331&sid=1&Fmt=2&clientId=2945&RQT=309&VName=PQD |
| Summary: | Considerable attention has been placed on internal monitoring mechanisms and their role in the turnover of the top management. Arguably one of the most important functions of the board of directors is to identify and hire suitable replacement managers, and the quality of the board's decision is ultimately judged by the performance of the firm following the replacement. In this study, I investigate the firm stock return and operating performance following a change in top management when the new CEO is characterized by the hiring firm as a turnaround specialist in the financial press. In a sample of 154 announcements from 1975 to 2000 of firms that hired turnaround specialists as CEO, the event day abnormal return was 9.52%, considerably higher than previous CEO turnover studies. The stock return performance of the turnaround specialist sample is significantly worse in the 24 months prior to appointment than from two control groups provided by Huson, Parrino, and Starks (2001) that replace a CEO following normal and forced removal of the prior CEO. The stock return performance of the turnaround specialist sample is no different in the 48 months following appointment from the normal and forced succession control groups and from a pre-event performance matched control group. Operating performance using either return on assets or gross margin is significantly lower in the year prior and year of CEO replacement for the turnaround specialist sample than either the normal and forced succession control groups or the performance matched control group. The subsequent operating performance of the turnaround specialist sample shows positive improvement from the fiscal year end prior to announcement to the second fiscal year end after. The performance improves to industry median levels and is no different from either the forced succession or performance matched control samples. Operating performance of the turnaround specialist firms return to the levels experienced two years prior to the appointment. This improvement is not due to accounting manipulations or mean reversion. Corporate control activity is significantly higher following the appointment of a turnaround specialist than any of the control samples as indicated by an examination of the firms that delisted from the major exchanges. A turnaround specialist is more likely to be appointed with factors that contribute to increased levels of financial distress. The probability of appointing a turnaround specialist increases with decreases in cash flow and return on assets and increasing debt levels. The operating performance improvement and the corporate control activity indicate the performance improvement of the turnaround specialists may lie in the redeployment of existing assets to higher valued uses. |
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| Item Description: | Vita. "Major Subject: Finance". |
| Physical Description: | viii, 81 leaves : illustrations ; 28 cm. Issued also on microfiche from University Microfilm Inc. |
| Bibliography: | Includes bibliographical references (leaves 43-46). |