Do Directors Respond to Stock Mispricing? Evidence from CEO Turnovers

Abstract This article examines whether and how stock mispricing can affect the probability of CEO turnover. In a sample 1,573 US public firms, I find that, after controlling for fundamental performance, 1-standard-deviation negative uninformative price shock increases likelihood turnover by 10%. The mispricing-turnover sensitivity is stronger at firms with an independent board, difference-in-difference analysis further supports that finding. Ancillary results suggest directors’ career concerns may play role in response boards to mispricing.