Capital's shares were down 5.53% to 470p this afternoon, following the announcement that Tarrant will depart the flagship breakfast show in the spring of 2004.
The departure confirmed long-time speculation that Tarrant was to go, although the appointment of the former 'Big Breakfast' host Vaughan came as a surprise.
The decision has already led to speculation that Capital Radio's drivetime presenter Neil "Dr" Fox is considering leaving the station, having lost out in the battle for the top job.
Fox, who is also a 'Pop Idol' judge, has previously stood in for Tarrant and been a ratings winner. He is reported to have criticised the station's management, calling it "appalling" and saying he was led to believe the job is his.
Vaughan has signed a three-year deal to present the big-hitting weekday breakfast show, which has been presented by Tarrant for 17 years.
The success of the breakfast show has always been closely linked with Capital's performance in the markets, not least because the show is the biggest in London, claiming 1.65m Londoners every morning.
Despite the fall in Capital's share price, the signing of Vaughan has been warmly welcomed by the industry, with the move being seen as highly positive for Capital and the commercial radio sector.
Mike Buckley, head of radio at ZenithOptimedia, said: "This is a great signing for Capital Radio and commercial radio, as it shows that they can attract some of the top talent in the country."
He added: "More importantly, it is great news that they have sorted this situation out before all the speculation of last year started again and now our minds have been to rest and we can plan ahead in confidence."
Initially this morning, Capital's share price held steady, before diving more than 7% to 462.5p.
Media analyst Richard Menzies-Gow at Dresdner Kleinwort Wasserstein told Reuters that he thought the drop was a harsh reaction, adding that he thought it was positive that the uncertainty was over.
This morning David Mansfield, Capital chief executive, said: "This has been an incredibly important decision for us. I believe that Johnny is simply the best presenter to take over the biggest show on London's leading radio station."
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