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Internal corporate governance, CEO turnover, and earnings management

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  • Hazarika, Sonali
  • Karpoff, Jonathan M.
  • Nahata, Rajarishi

Abstract

The likelihood and speed of forced CEO turnover – but not voluntary turnover – are positively related to a firm's earnings management. These patterns persist in tests that consider the effects of earnings restatements, regulatory enforcement actions, and the possible endogeneity of CEO turnover and earnings management. The relation between earnings management and forced turnover occurs both in firms with good and bad performance, and when the accruals work to inflate or deflate reported earnings. These results indicate that boards tend to act proactively to discipline managers who manage earnings aggressively, before the manipulations lead to costly external consequences.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Financial Economics.

Volume (Year): 104 (2012)
Issue (Month): 1 ()
Pages: 44-69

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Handle: RePEc:eee:jfinec:v:104:y:2012:i:1:p:44-69

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Web page: http://www.elsevier.com/locate/inca/505576

Related research

Keywords: Management turnover; Earnings management; Corporate governance;

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References

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Citations

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Cited by:
  1. Kuo, Jing-Ming & Ning, Lutao & Song, Xiaoqi, 2014. "The Real and Accrual-based Earnings Management Behaviors: Evidence from the Split Share Structure Reform in China," The International Journal of Accounting, Elsevier, vol. 49(1), pages 101-136.
  2. Tang, Hui-wen & Chen, Anlin & Chang, Chong-Chuo, 2013. "Insider trading, accrual abuse, and corporate governance in emerging markets — Evidence from Taiwan," Pacific-Basin Finance Journal, Elsevier, vol. 24(C), pages 132-155.
  3. Jiang, Fuxiu & Zhu, Bing & Huang, Jicheng, 2013. "CEO's financial experience and earnings management," Journal of Multinational Financial Management, Elsevier, vol. 23(3), pages 134-145.
  4. Masulis, Ronald W. & Mobbs, Shawn, 2014. "Independent director incentives: Where do talented directors spend their limited time and energy?," Journal of Financial Economics, Elsevier, vol. 111(2), pages 406-429.
  5. Jong-Seo Choi & Young-Min Kwak & Chongwoo Choe, 2012. "Earnings Management Surrounding CEO Turnover: Evidence from Korea," Development Research Unit Working Paper Series 35-12, Monash University, Department of Economics.
  6. John M. Barrios & Marco Fasan & Daniele Macciocchi, 2013. "CEO turnover, earnings management and value relevance. A theoretical analysis on the Italian context," Working Papers 11, Department of Management, Università Ca' Foscari Venezia.
  7. Marta Cristina Pelucio Grecco, 2013. "The Effect of Brazilian convergence to IFRS on earnings managment by listed Brazilian nonfinancial companies," Brazilian Business Review, Fucape Business School, vol. 10(4), pages 110-132, October.

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