Shareholder perceptions of the changing impact of CEOs: Market reactions to unexpected CEO deaths, 1950–2009

• Date: 01 April 2017
• Published date: 01 April 2017
• Author: Timothy J. Quigley,Robert J. Campbell,Craig Crossland
• DOI: http://doi.org/10.1002/smj.2504

Strategic Management Journal

Strat. Mgmt. J.,38: 939–949 (2017)

Published online EarlyView 29 March 2016 in Wiley Online Library (wileyonlinelibrary.com) DOI: 10.1002/smj.2504

Received 30 March 2015;Final revisionreceived 18 December 2015

SHAREHOLDER PERCEPTIONS OF THE CHANGING

IMPACT OF CEOS: MARKET REACTIONS TO

UNEXPECTED CEO DEATHS, 1950– 2009

TIMOTHY J. QUIGLEY,1*CRAIG CROSSLAND,2

and ROBERT J. CAMPBELL1

1Management Department, Terry College of Business, University of Georgia,

Athens, Georgia, U.S.A.

2Department of Management, Mendoza College of Business, University of Notre

Dame, Notre Dame, Indiana, U.S.A.

Research summary: Despite a number of studies highlighting the important impact Chief

Executive Ofcers (CEOs) have on rms, several theoretical and methodological questions cloud

existing ndings. This study takes an alternative approach by examining how shareholders’

perceptions of CEO signicance have changed over time. Using an event study methodology and

a sample of 240 sudden and unexpected CEO deaths, we show that absolute (unsigned) market

reactions to these eventsin U.S. public rms have increased markedly between 1950 and 2009. Our

results indicate that shareholders act in ways consistent with the belief that CEOs have become

increasingly more inuential in recent decades.

Managerial summary: With Chief Executive Ofcers (CEOs) facing increased scrutiny and

receiving ever-increasing pay packages,substantial debate exists about their overall contribution

to rm outcomes. While prior research has sought to calculate the proportion of rm outcomes

attributable to the CEO, this study takes an alternative approach by using the “wisdom of the

crowds” to assess how shareholders think about the importance of CEOs. Our study nds that

shareholders, perhaps the most nancially motivated stakeholder, view CEOs as increasingly

important drivers of rm outcomes, good and bad, versus their peers fromdecades earlier. Notably,

market reaction to the unexpected death of a CEO has increasedsteadily over the last six decades,

highlighting the importance of succession planning and supporting, at least partially,the increased

compensation given today’s top executives. Copyright © 2016 John Wiley & Sons, Ltd.

INTRODUCTION

The question of howmuch Chief Executive Ofcers

(CEOs) matter to company performance continues

to be a source of profound interest to general audi-

ences and scholars alike (Hambrick and Finkelstein,

1987; Khurana, 2002; Lieberson and O’Connor,

1972; see Wangrow, Schepker, and Barker, 2015,

for a recent review). A recent study in this domain

Keywords: CEO deaths; CEO effects; event study; man-

agerial discretion; senior executives

*Correspondence to: Timothy J. Quigley, Terry College of Busi-

ness, University of Georgia, 409 Brooks Hall, Athens, GA 30602.

E-mail: tquigley@uga.edu

Copyright © 2016 John Wiley & Sons, Ltd.

provocatively argued that the impact of U.S. pub-

lic company CEOs has increased substantially over

the last six decades and is greater today than ever

before (Quigley and Hambrick, 2015). This study

showed that the “CEO effect”— the proportion of

variance in rm performance that can be statistically

attributed to CEO-level factors, once other categor-

ical inuences have been accounted for (Mackey,

2008)— rose signicantly between 1950 and 2009.

In explaining this nding, these authors took it as a

well-documented given the concomitant claim that

“attributions of CEO signicance increased greatly

in recent decades” (Quigley and Hambrick, 2015:

821– 822).