The Effect of Chief Executive Officer’ Succession on the Share Price Performance of Listed Firms in Kenya

Abstract

Stock markets in the world individually and collectively play a critical role in their economies. They provide an avenue for raising funds, for trading in securities including futures, options and other derivatives which provide opportunities for investors to generate returns. The performance of the stock market is influenced by a number of factors including the change of CEO of a company and the general performance of the economy. Various studies have been carried out in the developed countries examining the performance of stock markets before and after CEO’s exit. These studies indicate that the stock market react differently based on the party announcement of a new CEO. This study analyzed the share price performance of listed companies in the Nairobi Stock Exchange before and after CEO exit. The share prices of listed companies during the event study and NSE month end indices for the period between 2008 and 2013 obtained from the NSE were analyzed using the event study market model where abnormal returns (AR) and cumulative average abnormal returns (CAAR) were derived. The results are displayed in APA tables and graphs. The volatility that follows a CEO change was found to have a significant impact on the performance of share prices, and listed companies’ boards should plan a succession strategy taking these effects into account. In order to find out exact situation of how much and in which direction CEO change impacts stock returns in Kenya (prior to change and after CEO change) a detailed analysis at the technical level covering all aspects is required