Earnings Guidance Following Top Executive Turnovers

Abstract:     
We investigate the impact of top executive (CEO and CFO) turnovers on the provision of earnings guidance to shed light on the manager-specific element of earnings guidance. We find that, on average, firms are less likely to provide earnings guidance in the quarters following executive turnovers. Breaks in guidance following CEO turnovers are relatively permanent (they persist in similar magnitudes for the two years following the turnover), whereas breaks following CFO turnovers are concentrated in the first two quarters following the turnover. Only among CFOs do we find that the background of the newly appointed CFO systematically affects the likelihood of providing guidance and the precision of any guidance provided. We conclude that new CEOs appear to institute disclosure policy changes, while new CFOs appear to temporarily halt guidance because they lack sufficient knowledge about the firm to effectively compile or disseminate guidance.

Keywords: Earnings guidance, Management guidance, Managerial expertise, Managerial knowledge, Executive turnover, CEO turnover, CFO turnover

JEL Classifications: G34, M41, M45, J44

Working Paper Series