The Resignation of Steve Jobs

by robekulick

Starting tomorrow, many investors will be asking how much it matters that Steve Jobs is resigning from Apple. I would imagine that given his high profile and reputation as an innovator, Apple stock will probably take a hit tomorrow but you never know with the stock market. And of course, the even bigger question is, whether Apple’s stock is likely to decline (or appreciate less quickly as the case may be) as result of Jobs’ resignation.

Of course the reason that I don’t invest in individual stocks is that I think these questions are at some level fundamentally unanswerable. But that caveat aside, I did find this paper entitled “Do CEOs Matter” that may provide some insight into the importance of CEOs:

The abstract reads:

"Estimating the value of top managerial talent is a central topic of research that has
attracted widespread attention from academics and practitioners. Yet, testing for the importance of
chief executive officers (CEOs) on firm outcomes  is challenging. In this paper we test for the
impact of CEOs on performance by assessing the effect of (1) CEO deaths and (2) the death of
CEOs’ immediate family members (spouse, parents, children, etc). Using a unique dataset from
Denmark, we find that CEO (but not board members’) own and family deaths are strongly
correlated with declines in firm operating profitability, investment and sales growth. Our CEO
shock-outcome analysis allows us to identify  the personal shocks that are the most (least)
meaningful for CEOs: the death of children and spouses (mothers-in-law). We show that individual
CEO, firm and industry characteristics seem to affect the impact of these shocks. In particular, CEO
effects are larger (lower) for longer-tenured (older) CEOs and for those managers with large
investment fixed effects. CEO shocks are relevant across the size distribution of firms but are
concentrated on those firms that invested heavily in the past. Lastly, we find that CEO shocks tend
to be larger in rapid growth-, high investment- and R&D-intensive industries. Overall, our findings
demonstrate managers are a key determinant of firm performance."

So if we accept these results as true, the future does look somewhat bleaker for Apple. The paper notes that the negative effects of CEO shocks are particularly pronounced when the CEO has served for a long period of time and when the company involved is in a “high-investment” and “R&D intensive” industry. Of course, I caution again that any predictions about individual stocks are highly speculative since it is impossible to effectively control for the large number of factors effecting an individual stock’s price. But if there is a sell-off at Apple starting tomorrow, it may not be purely overreaction.

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