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Explaining CEO Retention in Misreporting Firms

58 Pages Posted: 28 May 2016  

Messod Daniel Beneish

Indiana University - Kelley School of Business - Department of Accounting

Cassandra D. Marshall

University of Richmond - Department of Finance

Jun Yang

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: May 10, 2016

Abstract

We propose a framework that advances our understanding of CEO retention decisions in misreporting firms. Consistent with economic intuition, outside directors are more likely to fire (retain) CEOs when retention (replacement) costs are high relative to replacement (retention) costs. When the decision is ambiguous because neither cost dominates, outside directors are more likely to retain the CEO when they both benefit from selling stock in the misreporting period. We show that joint abnormal selling captures director-CEO alignment incrementally to biographical overlap. This new proxy operationalizes information sharing and trust, making it useful for studying economic decision-making embedded in social relationships.

Keywords: CEO turnover, CFO turnover, fraud, restatements, insider trading, litigation costs, replacement costs

JEL Classification: G31, G32, G34, M40

Suggested Citation

Beneish, Messod Daniel and Marshall, Cassandra D. and Yang, Jun, Explaining CEO Retention in Misreporting Firms (May 10, 2016). Journal of Financial Economics (JFE), Forthcoming. Available at SSRN: https://ssrn.com/abstract=2784490

Messod Beneish

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States
812-855-2628 (Phone)
812-855-4985 (Fax)

Cassandra Marshall (Contact Author)

University of Richmond - Department of Finance ( email )

1 Gateway Rd
Richmond, VA 23173
United States

Jun Yang

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3395 (Phone)
812-855-5875 (Fax)

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