Earnings Management Following Duality-Creating Successions: Ethnostatistics, Impression Management and Agency Theory

Abstract

We relate impression and earnings management to the field of ethnostatistics, the study of how statistics are produced and managed. By further linking impression management and agency theory, we show that earnings management may exacerbate agency problems. We hypothesize that earnings-increasing earnings management occurs more frequently following duality-creating successions than otherwise. A dual CEO/Chair would have greater authority to control the impression the company wants to make with its financial reports and may also be operating with greater expectations to produce positive results. Using a sample of 173 duality-creating succession announcements and 112 non-duality creating succession announcements, we find empirical results consistent with this hypothesis.

Keywords: Earnings mangement, CEO duality, Impression management

JEL Classification: G30, G34, M41