Damodaran on Valuation_ Security Analysis for Investment and Corporate Finance ( PDFDrive )

takeover intensity is high (measured by the number of
mergersthattook placeinit)tradeathighermarketvalues
relative to replacement cost or book value.
45

Management Changes

Earlierinthischapter,welookedattheprobabilityofforced
CEOturnover.Ifthemarketpricereflectstheexpectedvalue
ofcontrolinacompany,theconditionsunderwhichaCEOis
removed and how a successor is picked should affect the
stockprice.Inbadlymanagedfirms,aforcedCEOturnover
with an outside successor should have the most positive
consequences, especially when the outsider is viewed as
someone capable of changing the way the firm is run.
KhuranaandNohria (2002)presentfourpossiblescenarios,
built around whether CEO turnover is forced or natural
(retirementordeath)andwhetherthesuccessorisaninsider
or an outsider.
46 Looking at these scenarios from the perspective of
managementchange,wewouldexpecttheoutcomeslistedin
Table 13.2.

TABLE 13.2CEO Turnover and Successor Identity

Successor Is

Insider

Successor Is Outsider

Natural

CEO

turnover

Status quo

No change in likelihood of

management change but may

change current management

policy