STOCK MARKET REACTION TO THE ANNOUNCEMENT OF TOP MANAGEMENT CHANGES: PRELIMINARY FINDINGS FROM THE DAMASCUS SECURITIES EXCHANGE (DSE)

Abstract

The aim of this study is to examine the stock market reaction to the announcements of top management changes in the Damascus Securities Exchange (DSE). All announcements made by firms listed on the DSE from June 2010 to June 2017 were hand collected and only those related to top management changes and met the selection criteria were included in the sample. Following an event study methodology with different event windows, the results indicate positive abnormal returns and positive and significant cumulative abnormal returns in most of the days of the event window related to top management resignations. Surprisingly, the analysis of the trading volume reaction to top management resignations reveals negative and significant abnormal trading volumes over the event window. This could be due to the high asymmetry information associated with such type of announcements. Unlike the announcements of top management resignations, the announcements of top management appointments were not associated with any significant abnormal returns or cumulative abnormal returns. This does not appear to be driven by the equal dominance of the real and information component of the announcement as the abnormal trading volumes related to top management appointments were mainly negative and insignificant. The results, thus, suggest that the announcement of top management appointments has no information content to investors in the DSE. Introduction:-With the great role played by top management in determining the firm's strategy and performance, changes in top management should be viewed by shareholders as a major determinant of the firm's future performance. Therefore, investors are expected to react to the announcement of such changes. Warner et al. (1988), however, highlighted that there might be several reasons behind top management changes such as death, retirement, voluntary resignation, forced resignation (dismissal) and appointment. In fact, even the voluntary and forced resignations might be examined further on whether they followed a poor or good performance (Kind and Schläpfer, 2011), or on whether the successor is an internal or external one (Setiawan et al., 2011; Charitou et al., 2010; Dahya and McConnell, 2005).