Executive Succession and Post-Restructuring Performance Improvement and Financial Reporting Quality

56 Pages Posted: 19 Jan 2013

See all articles by Jian Cao

Jian Cao

Florida Atlantic University

Hsin-Yi (Shirley) Hsieh

Florida Atlantic University

Mark J. Kohlbeck

Florida Atlantic University - School of Accounting

Date Written: December 31, 2012

Abstract

We investigate the impact of CEO turnover in connection with corporate restructurings on subsequent performance improvement and accounting quality. Although operational restructurings are credited with performance improvements, prior studies suggest companies potentially manipulate restructuring charges to mask true economic performance. We document significant improvements in post-restructuring investment efficiency and operating performance with no differentiation between firms that experience pre-restructuring CEO turnovers and those that do not. However, continuing managers are more likely to display opportunistic behavior, suggesting their performance improvements are less consistent with real economic changes than pre-restructuring turnover firms. This difference in accounting quality is also more pronounced for firms with outside replacements. Overall, our findings suggest that the threat of managerial termination can effectively induce managers to undertake appropriate actions and commit to higher reporting quality in poorly performing firms.

Keywords: Earnings management, Executive turnover, Investment efficiency, Operating performance, Restructuring

JEL Classification: G14, G34, M41

Suggested Citation

Cao, Jian and Hsieh, Hsin-Yi (Shirley) and Kohlbeck, Mark J., Executive Succession and Post-Restructuring Performance Improvement and Financial Reporting Quality (December 31, 2012). Available at SSRN: https://ssrn.com/abstract=2202919 or http://dx.doi.org/10.2139/ssrn.2202919

Jian Cao

Florida Atlantic University ( email )

777 Glades Rd.
Boca Raton, FL 33431
United States
561-297-3727 (Phone)

Hsin-Yi (Shirley) Hsieh

Florida Atlantic University ( email )

Boca Raton, FL 33431
United States
561-297-1463 (Phone)

Mark J. Kohlbeck (Contact Author)

Florida Atlantic University - School of Accounting ( email )

777 Glades Avenue
KH 119
Boca Raton, FL 33431-0991
United States
561-297-1363 (Phone)

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