Information Transfer Effects of Senior Executives' Migrations and Subsequent Write-offs

Abstract

In this study, we consider whether the market conditions its reactions to a senior executive’s (SE) move from an origin company (OC) to a destination company (DC) on the SE’s past performance and any other information impounded in the market reaction to the SE’s emigration from the OC. We also examine whether the market perceives a benefit in the hiring of an SE with an industry-specific background. We find that, with regard to migration events, the performance of the OC—accounting and stock—before the SE’s migration is positively associated with the market reaction to the immigration event only when the OC and the DC are members of the same industry. With respect to an OC’s contiguously subsequent write-off and restructuring events, we conjecture that subsequent large restructuring events signal hitherto unrecognized shortcomings of the emigrating SE, whereas non-restructuring asset write-offs are more likely to be a manifestation of neutral (with respect to inferences regarding the quality of the emigrating SE) big baths taken by the OC’s incoming SE. We hypothesize and find that, ceteris paribus, the market reaction to the DC’s stock at the time of the OC’s announcement of a post-immigration write-off or restructuring is negatively associated with the OC’s pre-emigration performance (which is predominantly positive in our sample), and possibly non-negatively associated with an asset write-off (which is not a restructuring event). We also conjecture that these effects are enhanced (become more negative) when the DC imports an SE from a competitor.