The firms with high leverage will have a positive

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the firms with high leverage will have a positive abnormal return around hiring announcements of CROs: H 5 : Ceteris paribus, the market reaction to firm announcements of appointments of CROs will be positively associated with the extent of the firm’s leverage. 2.6 Size Research examining the use of financial derivatives finds that large companies make greater use of derivatives than smaller companies. Such findings confirm the ex- perience of risk management practitioners that the corporate use of derivatives requires considerable upfront investment in personnel, training, and computer hardware and software, which might discourage smaller firms from engaging in their use (Stulz [2003]). Recent calls for ERM adoption in the financial services industry emphasize that ERM adoptions should depend on the size and level of complexity of the institu- tion, with smaller firms applying ERM in less formal and less structured ways (Bies [2007]). Therefore, all else equal, ERM will be less costly for large firms compared with small firms because of economies of scale. We hypothesize that larger firms will have a positive abnormal return around hiring announcements of CROs: H 6 : Ceteris paribus, the market reaction to firm announcements of appoint- ments of CROs will be positively associated with firm size. 2.7 Beta or Market Risk If ERM introduction reduces the market risk of the firm (in addition to the idiosyncratic risk), rational stock investors will reprice the stock using a lower cost of capital. This repricing will result in an upward revision of the stock price. We therefore control for the possibility that observed price reactions to ERM adoption merely represent the market anticipating reductions in the firm’s beta. We hypothesize that a decline in beta around the introduction of ERM will be associated with a positive stock price reaction. 4 H 7 : Ceteris paribus, the market reaction to firm announcements of appoint- ments of CROs will be negatively associated with the change in the firm’s beta. 4. We thank the referee for suggesting this hypothesis. 319 INFORMATION CONVEYED IN HIRING ANNOUNCEMENTS
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3. Data and Methodology Our study method examines the impact of firm-specific characteristics on the equity market response to announcements of appointments of CROs within the enterprise. To obtain a sample of such appointments, we conduct a search of hir- ing announcements of senior risk management executives made during the period 1992–2003. Announcements are obtained by searching the business library of LEXIS-NEXIS for announcements containing the words ‘‘announced,’’ ‘‘named,’’ or ‘‘appointed’’ in conjunction with position descriptions of ‘‘chief risk officer’’ or ‘‘risk management’’ (consistent with the approach used by Liebenberg & Hoyt [2003]). We searched the period of 1992 through 2003 and identified 348 obser- vations. Each observation is unique to a firm, in that it represents a firm’s first announcement during the period searched, subsequent announcements by a firm are excluded. By starting our search in 1992, we hope to capture the initial crea-
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