To Be or Not To Be ‑ Reaction of Stock Returns to Sudden Deaths of Chief Executive Officers
This article presents a study which examined the direction of stock returns after reports of sudden deaths of chief executive officers (CEO). Stock market reactions to the sudden deaths of CEO are somewhat mixed. Immediate negative reactions occur on the days of the deaths, but the ensuing return behavior depends partly on the type of officer dying and the cause of the death. In the cases of chairmen's deaths, positive cumulative returns develop over the thirty days subsequent to the death dates. In contrast, the cumulative returns following the deaths of presidents appear to be indiscernible, and if anything, are slightly negative. In regard to the deaths by their causes, positive cumulative returns similar to those observed for chairmen's deaths, are also strongly present in the cases of accidental deaths for roughly one month after the deaths; but no clearcut patterns are evident for deaths caused by heart attacks and suicides. The sudden death of a CEO initially presents an opportunity to go short in the stocks of the affected firms, but the short position must be closed rapidly because the negative response seems to last only one day. Thus, this opportunity would not seem to be really available to most investors. On the other hand, the sudden death of a chairman appears to open up an opportunity to go long in the stock of the affected company.
Accounting and Finance
Journal of Business & Economic Studies
Etebari, A. To Be or Not To Be ‑ Reaction of Stock Returns to Sudden Deaths of Chief Executive Officers, (with J. Horrigan and J. Landwehr) Journal of Business Finance and Accounting, v. 14, n. 2, summer 1987. In summary form, it also appeared in Market Logic, an investment letter published by Norman Fosback, October 1985, The Seattle Times under the heading: "Chairman's Death Could Bring New Life to Stock Portfolio," November 24, 1985.