The dissertation investigates how top level managers such as CEO (Chief Executive Officer) or CFO (Chief Financial Officer) affect the value of the firm in the financial market from various perspectives of finance. Prior research in executive turnover and governance has found that past performance is the primary determinant of top manager dismissal. Stock prices, which serve as the base of forward looking performance evaluation, are inevitably noisy. In the first essay, I find that default probability using the structural model of default is more informative than the stock price based performance measures in understanding forced turnover of top managers. Using hand collected data regarding CEO and CFO departures, I find that better governed firms fire a CEO or CFO sensitively to firm performance proxied by default probability. I do not find that the forced turnover became more sensitive to firm performance after Sarbanes Oxley Act of 2002. Instead, I find such increase in turnover-performance sensitivity since 1998, which is consistent with Kaplan et al. (2006). The second essay investigates how the CEO's media play affect the stock price of his or her firm. We find that non-informative media-driven attention affects stock prices transitorily. Based on 6,937 CEO interviews on the financial network, CNBC, during the period from 1997 to 2006, we find that a firm experiences a positive and significant abnormal return of 162 basis points over the [-2, 0] trading day window, and a negative and significant abnormal return of 108 basis points over the next ten trading days. This finding is robust to whether or not the interview was confounded by any major corporate events or by any news articles. Also, this pattern is commonly found across different stock exchanges and at different time periods. We find that this stock price response is not unique to technology stocks. Furthermore, we find that enthusiastic individual investors are the key driving force behind this stock price response pattern. The value of the firm may be affected by the skill of the manager. The third essay investigates this possibility with empirical data. We find that managerial skills are priced in the financial market as well as in the labor market. We find evidence that the financial accounting skills of a Chief Financial Officer is reflected in the firm's stock price. A transition from a CPA CFO to a non-CPA CFO results in a permanent value loss (Average Cumulative Abnormal Return) of 19.3% compared to a transition from a CPA CFO to another CPA CFO position, other things being equal. Ceteris paribus, having a CPA license is associated with having a 42% higher salary as a CFO. Moreover, we find that CPA skills matter in a firm in the sense that a transition from a non-CPA CFO to a CPA CFO position reduces the earnings management as well as the degree of information asymmetry. We find evidence that shareholders with different monitoring capabilities influence the hiring of CFOs with different certification of his or her skills. We also find that institutional investors significantly influence the hiring of CFOs with the specific skills they prefer depending on the business environment of the firm.
展开▼
