It Makes a Difference

To the Editors:

John Kenneth Galbraith incorrectly asserts that “the stock market reacts with refined indifference to the passage of command in the great corporation” [NYR, August 14]. In a recent study of stock market reactions to CEO succession events in Fortune 500 firms, we found that when a former CEO either retires early voluntarily or when he is forced to leave, a firm’s stock price goes up at the time of the event. When the succession is a routine retirement due to age, however, there is no reaction. That the information imparted (in an unexpected succession) about a firm’s future fortunes is salient enough to influence investors’ decisions suggests that, although tycoons may be gone, the individual at the helm can make a difference.

Stewart D. Friedman

Harbir Singh

The Wharton School

of the University of Pennsylvania

Philadelphia, Pennsylvania

John Kenneth Galbraith replies:

I stand corrected as regards the fact. Sorry.