CEO Turnover and Properties of Accounting Information
University of Chicago Booth School of Business
Rachel M. Hayes
University of Utah - David Eccles School of Business
Ohio State University - Fisher College of Business
Journal of Accounting & Economics, Vol. 36, No. 1-3, pp. 197-226, December 2003
Multiple-performance-measure agency models predict that optimal contracts should place greater reliance on performance measures that are more precise and more sensitive to the agent's effort. We apply these predictions to CEO retention decisions. First, we develop an agency model to motivate proxies for signal and noise in firm-level performance measures. We then document that accounting information appears to receive greater weight in turnover decisions when accounting-based measures are more precise and more sensitive. We also present evidence suggesting that market-based performance measures receive less weight in turnover decisions when accounting-based measures are more sensitive or market returns are more variable.
JEL Classification: M41, G34
Date posted: December 2, 2003
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