The Impact of Change in CEO Ownership on Future Firm Performance

Ching-Chih Wu^1, and Yi-Ru Dong²

¹Department of Finance, Providence University, Taichung City, Taiwan

²Department of Finance, Tainan University of Technology, Tainan City, Taiwan

Cite this paper:
Ching-Chih Wu and Yi-Ru Dong. The Impact of Change in CEO Ownership on Future Firm Performance. Journal of Finance and Economics. 2020; 8(3):100-106. doi: 10.12691/jfe-8-3-2

Abstract

This paper investigates how a change in CEO ownership influences financial performance and market return in the long run. Using an accounting-based framework, we measure financial performance and changes in CEO ownership by using the public firms in the Taiwan Stock Exchange from 1996 to 2018. The findings in CEO ownership are consistent with the convergence-of-interests, entrenchment, and signaling hypotheses in different empirical tests. We find a positive relation between return on assets (ROA) and changes in CEO ownership when the CEO ownership is decreasing. In contrast, ROA is negative significantly associated with CEO ownership when the CEO ownership is increasing. Moreover, we also find that market performance is significantly positively associated with CEO ownership, which is consistent with the signaling hypothesis. Overall, this paper infers that a change in CEO ownership significantly affects future firm performance. Furthermore, investors respond positively to the negative signals released in the stock market. Therefore, the firms have poorer market performance simultaneously.

Keywords:
CEO ownership convergence of interest entrenchment signaling hypothesis

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