The effects of chief executive officer in change announcements on the stock returns of firms listed at the Nairobi stock exchange

Abstract

The aim of this research was to study the effect of Chief Executive Officer change announcements on the stock returns at the Nairobi Stock. Event study methodology was used in the research. Average Abnormal Returns were computed around the CEO change announcement to find their statistical difference from zero. Market model was used to drive expected return and t-statistic to test the hypothesis. There were 17 events between 2005 and 2009. Only 15 of these resulted in the CEO change announcement in this study. The research observed a statistically significant negative impact on the stock returns at the date of announcement of CEO change; but this was wiped out by a statistically significant positive return when looking at the prior to the CEO announcement. Stock returns showed a significant adjustment to CEO change at the time of announcement. From the findings, CEO change is treated by investors as bad news. The result of this study found that NSE is in semi-strong form of efficiency. This study contributes to the debate of market efficiency, particularly, in the Kenyan context and provides ground for further research relating to CEO changes.