When a new CEO’s at the helm, investors pay attention.

Like anyone taking on a new job, there’s a learning curve that person must go through. But when that person is the leader of a publicly traded corporation, the consequences can be immediate and large.

Yihui Pan, assistant professor of finance, explores the effects a new CEO can have on a company’s stock in the paper she co-authored, “Learning about CEO Ability and Stock Return Volatility.” The paper, which was co-authored with Tracy Yue Wang and Michael S. Weisbach, has been accepted in the Review of Financial Studies.

“Any manager’s ability to do a new job is, to some extent, unknown. The uncertainty about ability could be related to innate talent or the quality of the match between the job and the manager’s personality, skills, or strategic vision,” Pan said. “Over time, especially when the manager is highly visible, like a CEO, his or her ability to create value at a particular firm will be revealed to the market.”

Listen to a podcast of Pan detailing her research. A full transcript is below.

Transcript:

Eccles School: Yihui Pan is an assistant professor of finance at the David Eccles School of Business at the University of Utah. She co-authored the paper “Learning about CEO Ability and Stock Return Volatility,” which has been accepted for publication in the Review of Financial Studies. Yihui, thanks for joining us.

Yihui Pan: Thanks for having me here.

Eccles School: Tell me about your findings in your paper “Learning about CEO Ability and Stock Return Volatility.”

Yihui Pan: As the title reveals, we study how the market’s learning about new CEO’s ability affects stock price movement. Any manager’s ability to do a new job is, to some extent, unknown. The uncertainty about his ability could be related to his innate talent or the quality of the match between the job and his personality, skills, or strategic vision. Over time, especially when the manager is