Ffect of Chief Executive Officer Change on Stock Returns of Firms Listed at the Nairobi Securities Exchange

Abstract

The change of the leadership of a firm is an important occurrence in a business organizations life. The transition of a firm management is a dire point in the existence of accompany and most changes that as a result of change don’t only effect the directions by the management for the business but may also affect the return of the firm’s shares. This study studied the effect of chief executive officer change on stock prices of firms listed at the Nairobi securities exchange. To achieve this objective, a descriptive research design was employed. The study population comprises of 13 firms listed at the NSE, which had changed their chief executive officers for the period between January 2012 and December 2016. This research paper used secondary sources of data. The retrieved data covered a period of 5 years from January 2012 and December 2016. The research paper adopted an event study methodology. The event period for the study was 31 days, where -15 days covered the pre CEO change announcement period and +15days covered post CEO change announcement while the event day was 0. The paired sampled statistics results established that there was a positive average abnormal return (AAR) after and before CEO change announcement and there was a significant and positive variation in stock returns of listed firms before and after CEO change announcement. The findings further established that there was a positive cumulative average abnormal return (CAAR) after and before CEO change announcement and that there was a significant and negative variation in stock returns of listed firms before and after CEO change announcement. The study concluded that CEO change announcements influences stock price of firms listed at the Nairobi Securities Exchange. The study recommended that the management of listed firms should not worry about making changes to the chief executive officers since CEO change announcement significantly affect the firm’s stock prices.