CEO Retirements and Shareholder, Market Reactions

CEO Retirements and Shareholder, Market Reactions

CEO retirements – the most common reason for executive succession and yet a relatively overlooked area of research – are assumed to be an inconsequential part of normal business and therefore not disruptive to an organization.

A new study by management researchers at the University of Arkansas shows this conventional assumption to be inaccurate. According to market data, shareholders perceive CEO retirements to be a significant disruption to the viability of an organization.

“Prior research has suggested that CEO retirements, at least on the surface, represent a relatively smooth exchange of titles,” said Alan Ellstrand, professor and chair of the Department of Management in the Sam M. Walton College of Business. “And so successions due to customary retirements have ordinarily fallen within the category of inconsequential events. We tested this assumption by empirically analyzing the relationship between CEO retirement announcements and shareholder reactions.”

Ellstrand and colleagues – Jon Johnson, professor of management; Hansin Bilgili, management doctoral student and lead author; and Joanna Campbell, assistant professor of management at the University of Cincinnati – analyzed 572 retirements and their effect on shareholder reactions. The researchers obtained information from a comprehensive dataset compiling CEO retirements from S&P 1500 firms from 2003 to 2012.

The researchers found that capital markets reacted significantly to retirement announcements. The magnitude and direction of these reactions depended on the firm’s financial performance before the retirement, whether the successor came from within or outside the firm, whether or not the CEO was the founder of the firm, and whether or not the retiring CEO was retained on the firm’s board of directors.

While, on average, shareholders reacted negatively to CEO retirement announcements, the researchers found that shareholders reacted more positively when a poorly performing CEO retired. In this scenario, shareholders preferred the fresh perspective brought about by hiring a successor outside the firm.

Founder CEO retirements elicited even greater negative reactions, the study found. However, shareholder reactions to founder retirements were more positive when the CEO was retained as a member of the firm’s board of directors.

“Based on these findings, we think CEO retirement is an important and yet overlooked form of turnover,” Ellstrand said. “Treating these announcements as consequential corporate disclosures can only benefit a firm’s strategic management.”

The researchers presented their findings at the annual meeting of the Academy of Management and have submitted the study for publication.

Ellstrand holds the Charles C. Fichtner Chair in Management.

About The Author

Matt McGowan writes about research in the College of Engineering, Sam M. Walton College of Business, School of Law and other areas. He is the editor of Short Talks From the Hill, a podcast of the University of Arkansas. Reach him at 479-575-4246 or

University Relations Science and Research Team

University Relations Science and Research Team

Matt McGowan
science and research writer

Robert Whitby
science and research writer

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