Are the key persons in companies also their key assets? Evidence from a transition economy

Abstract

This study examines how published information about the death of a key person in a company has affected its market valuation as listed on the Warsaw Stock Exchange during the period 2005–2017. We find that investors reacted negatively and statistically significantly to information about the death of a key person. Furthermore we confirmed a positive reaction to the loss of a so-called “entrenched CEO”. The same pattern of investor reaction is observed in more mature markets. These findings seem to support the upper echelons theory and entrenchment hypothesis. The obtained results not only contribute to the development of the theory, but also have significant practical implications. Primarily, investors should take into account such events when they are implementing investment strategies. Further, these results suggest that Polish firms need to undertake more formal succession planning for their executives.