We examine board quality and executive replacement decisions around deaths of senior executives. Stock-price reactions to executive deaths are positively related to board independence. Controlling for such factors as the deceased’s stockholdings, outside blockholdings, board size and whether the deceased was a founder, board independence is the most significant factor explaining abnormal returns. Board independence is particularly important when there is no apparent successor and firm performance is poor. The results are consistent with independent boards being reluctant to discipline poorly performing incumbent managers, but nevertheless using the opportunity of an executive death to improve the quality of management.
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