On the sudden departure caused by death or disability of the CEO, what percentage would shareholder value of the organisation decrease or increase?

The top 3 causes of sudden death of the CEO indicated below, are causes that are preventable and should never happen. For a number of years, leading to the actual cause of death or a disabled state, quality of life and personal performance has suffered and is not calculated into the actual loss to the executive or the the organisation.

Larcker et al. (2012) suggests that there is no greater test of the viability of a company’s succession plan than the sudden death of its CEO. Approximately seven CEOs of publicly traded companies die each year in the U.S. The most common causes of death are cancer, heart attack, and stroke. Less frequent, although still significant, are deaths due to airplane, automobile, and other accidents.

Top 5 Causes of CEO Death (1978-2000) of 161 deaths

  1. 39 – Heart attack/heart failure
  2. 30 – Cancer or other tumor
  3. 28 – Unexpected sudden natural causes (including stroke or brain aneurysm)
  4. 20 – Unknown or undisclosed cause
  5. 14 – Automobile accident, airplane accident, drowning, lightning, or fire
Source: Borokhovich, Brunarski, Donahue, and Harman. The Importance of Board Quality in the Event of a CEO Death. The Financial Review 41 (2006).

The question raised by Crossland (2016), is how much Chief Executive Officers (CEOs) matter to company performance. This question continues to be a source of profound interest to general audiences and scholars alike (Hambrick and Finkelstein, 1987; Khurana, 2002; Lieberson and O’Connor, 1972; and including Wangrow, Schepker, and Barker, 2015)

Quigley et al. (2015). recent study in this domain argued that the impact of U.S. public company CEOs has increased substantially over the last six decades and is greater today than ever before.

In the 2015 June issue of Strategic Management Journal, Quigley states that he has created ways to measure what the CEO effect or the percentage of a firm’s profits that comes from top-level decisions. Quigley states that they can place the CEO effect at about 25 percent today, which means that the CEO typically account for a little more than a fourth of a firm’s overall profit. Quigley (2015) further states that in the 1950s and ’60s, the value placed on the CEO effect was less-at bout 6 to 8 percent.”

Quigley (2015) references (Nguyen and Nielsen, 2010: 553) who state that a death has been coded as being unexpected when it occurred ‘instantaneously or within a few hours of an abrupt change in the person’s previous clinical state. Thus, accidents or medical conditions not previously identified, which resulted in the sudden death of an executive (the same day), were coded as unexpected.

Quigley (2015) states that the overall magnitude or dispersion of market reactions, that is, the size of the reactions, positive or negative, but without regard to the actual sign to the deaths of CEOs was significantly larger in more recent periods. The results indicate that shareholders act in ways consistent with the belief that CEO’s have become increasingly more influential in recent decades.

Quigley (2015) references Miles and Bennett, (2009) who suggest that firms are becoming increasingly aware of the need to establish and update CEO succession plans. The greater prevalence of CEO succession plans could reduce the average market reaction to unexpected successions.

Bennedsen et al. (2006) was able to identify 11,002 deaths occurring to executives and board members and to their immediate family members between 1994 and 2002. In the sample, 1,476 deaths corresponded to CEOs (629 cases) and board members (847), 1,483 to spouses, 5,046 to parents, 2,561 to parents-in-law and 415 to children.

Bennedsen et al. (2006), main findings were CEO deaths are strongly correlated with declines in firm operating profitability, asset growth and sales growth. Secondly, the death of board members does not seem to affect firm prospects, indicating that not all senior managers are equally important for firms’ outcomes. Third, CEOs’ immediate family deaths are significantly negatively correlated to firm performance. This last result established a strong link between the personal and business roles that top management play. Overall, the findings demonstrated CEOs are extremely important for firms’ prospects.

Bennedsen et al. (2006), first used senior management deaths to evaluate whether firm profitability is affected when chief executive officers (CEOs) and board members die. They found that firms’ prospects were significantly negatively affected by the loss of their CEOs, but were unaffected by the death of a member of the board. Their results, as a result, provide empirical support to the idea that certain managers, in the sample firms CEOs, are extremely important firms’ performance: CEO deaths affect firms operating profitability, its investment decisions and sales growth.

Crossland et al. (2016), found that following the unexpected death of a CEO, a company’s market cap increases or decreases by $65 million more than it did 60 years ago. Crossland et al., (2016) looked at all 240 U.S. public companies with CEOs who died suddenly between 1950 and 2009. The average firm in the sample had a market cap of $1.3 billion.

Crossland et al. (2016), also found that in later periods, negative reactions were more negative after the death of a highly regarded CEO, and the positive reactions were more positive after the death of an underperforming CEO.

Crossland et al., (2016), states that given the large swings in a firm’s market price, which could be destabilizing, can probably be mitigated to a certain degree should firms and boards recognize the implication that succession planning is increasingly important.

Jenter et al. (2016), identified 458 CEO deaths in publicly traded U.S. firms between 1980 and 2012. They collect detailed information on 162 sudden deaths and 296 non-sudden deaths. A non-sudden death, labelled as slow deaths. is preceded by at least some indication that the CEO suffers from ill health

Jenter et al. (2016), evidence shows that CEOs are an important determinant of shareholder value for many firms, and that the allocation of CEOs to firms is not frictionless. Sudden deaths are on average associated with large losses of shareholder value. The average three-day cumulative abnormal announcement return (CAR) for a sudden CEO death is stated to be statistically significant –2.32%.

Jenter et al. (2016), state further that the losses are larger for sudden deaths of young CEOs and short-tenured CEOs. For CEOs in the bottom third of the age distribution (< 59 years), the average three-day CAR is −4.24%, and for CEOs in the bottom third of the tenure distribution (< 8 years), the average three-day CAR is −4.00%. Not all sudden deaths are associated with negative returns. For example, for CEOs in the top tertile of the age distribution (> 65 years), the average three-day CAR is +3.59%.

Thank you for reading our article. For any further insight and enquiry to learn how to manage this risk and prevent disease from being the cause of loss of the CEO or seeking to achieve your own state of optimal well-being , you welcome to leave a comment, or send a message to

Peter Šmanjak

Owner and Founder at Infinite Risk

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