Porter et al. (2004: 8) suggest that a key role of a company CEO‘ is to sell the strategy and shape.
- March 05, 2021/ Questions
Porter et al. (2004: 8) suggest that a key role of a company CEO‘ is to sell the strategy and shape how analysts and shareholders look at the company. If investors are uninformed about the company strategy, the resulting information asymmetries create uncertainty which has a negative impact upon share prices and the company’s costs of capital. Whittington et al. (2016) thus argue that CEOs should provide public presentations in which they inform investors about the broad strategies of their companies. They further suggest that the information asymmetries, and hence the potential benefits, are greatest the more the CEO is unfamiliar to the investors– as in the case of new CEOs, and when new CEOs come from outside the company. They tested their hypotheses using event study analysis and data on 876 presentations made by the CEOs of US companies over the period 2000–2010. They found that share prices rose by 1.6 per cent on average after these presentations, but that the reactions were stronger the more the CEO was unfamiliar to investors. Thus the share price gains following presentations by new CEOs were 5.3 per cent; but they were 9.3 per cent for external, within-industry new CEOs, and were 12.4 per cent for external, outside-of-industry new CEOs. They concluded that such presentations were not‘ cheap talk’, but effective forms of impression management, especially in the uncertain months following the appointment of a new CEO. Furthermore, they report that the timing of presentations can make a difference, with greater effects if the presentations take place within the first 100 days than within the first 200 days.