Management Changes, Reputation, and 'Big Bath'-Earnings Management

22 Pages Posted: 29 Jul 2015

See all articles by Petra Nieken

Petra Nieken

Chair of Human Resource Management

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management; IZA Institute of Labor Economics

Date Written: Fall 2015

Abstract

We study the effects of managerial turnover on earnings management activities in a model in which managers care about their external reputation. We develop an overlapping generations model showing that both outgoing and incoming managers bias reported earnings such that typically very low returns are reported in the first period after a manager has been replaced. Outgoing managers shift earnings forward to their last period in office as they will not benefit from earnings realized after that. Incoming managers can have an incentive to shift earnings to the second period in office as reported earnings will, immediately after a management change, only be partly attributed to their own ability. Deferred compensation can reduce incentives for earnings management.

Keywords: earnings management, management turnover, reputational concerns, career concerns, image concerns

Suggested Citation

Nieken, Petra and Sliwka, Dirk, Management Changes, Reputation, and 'Big Bath'-Earnings Management (Fall 2015). Journal of Economics & Management Strategy, Vol. 24, Issue 3, pp. 501-522, 2015. Available at SSRN: https://ssrn.com/abstract=2637078 or http://dx.doi.org/10.1111/jems.12101

Petra Nieken (Contact Author)

Chair of Human Resource Management ( email )

Kaiserstraße 12
Karlsruhe, Baden Württemberg 76131
Germany

Dirk Sliwka

University of Cologne - Department of Business Administration and Human Resource Management ( email )

Koln, 50923
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Register to save articles to
your library

Register

Paper statistics

Downloads
0
Abstract Views
357
PlumX Metrics