An Analysis of the Stock Market Reaction to Sudden Executive Deaths: Implications for the Managerial Labor Market

Certain characteristics of managerial employment arrangements and of the managerial labor market make shareholder wealth dependent on an executive's continued employment. These wealth effects are investigated by examining the common stock price reaction to unexpected deaths of senior corporate executives. Abnormal stock price changes are documented for a sample of fifty-three events. These abnormal stock price changes are associated with the executive's status as a corporate founder and with measures of the executive's talents and decision-making responsibility, and of the transaction costs associated with renegotiating or terminating the employment agreement.