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Learning About CEO Ability and Stock Return Volatility

Year: 2015

Type: article

Abstract: Consistent with predictions from a stylized Bayesian learning model stock return volatility declines with CEO tenure in a convex manner, even for CEOs whose appointments occur for exogenous reasons. The decline is faster when there is higher uncertainty about the CEO's ability when there is more transparency about the firm's prospects, and when CEO ability is more important in value creation. We quantify the importance of uncertainty about CEO ability relative to the firm's fundamental cash flow uncertainty in contributing to stock return volatility, highlighting the importance of management in creating value.

Source: Review of Financial Studies

DOI: 10.1093/rfs/hhv014

Authors: Yihui Pan, Tracy Yue Wang, Michael S. Weisbach

Institutions: University of Utah, University of Minnesota, National Bureau of Economic Research, The Ohio State University

Language: English

Topic: Corporate Finance and Governance

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W3123046407

FWCI: 29.11

Cites: 51

Cited by: 226

Related to: 9