Internal Corporate Governance, CEO Turnover, and Earnings Management

60 Pages Posted: 22 Mar 2010 Last revised: 15 Jan 2013

See all articles by Sonali Hazarika

Sonali Hazarika

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York

Jonathan M. Karpoff

University of Washington - Michael G. Foster School of Business

Rajarishi Nahata

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance

Date Written: October 17, 2011

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.

Keywords: Management turnover, earnings management, corporate governance

JEL Classification: G38, K22, K42, M41

Suggested Citation

Hazarika, Sonali and Karpoff, Jonathan M. and Nahata, Rajarishi, Internal Corporate Governance, CEO Turnover, and Earnings Management (October 17, 2011). Journal of Financial Economics (JFE), 2012 (104), 44-69.. Available at SSRN: https://ssrn.com/abstract=1573190

Sonali Hazarika

Zicklin School of Business, Department of Economics and Finance, Baruch College - The City University of New York ( email )

17 Lexington Avenue
New York, NY 10010
United States

Jonathan M. Karpoff (Contact Author)

University of Washington - Michael G. Foster School of Business ( email )

Box 353226
Seattle, WA 98195-3200
United States
206-685-4954 (Phone)
206-221-6856 (Fax)

Rajarishi Nahata

City University of New York, Baruch College - Zicklin School of Business - Department of Economics and Finance ( email )

17 Lexington Avenue
New York, NY 10010
United States

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