Accounting Losses as a Heuristic for Managerial Failure: Evidence from CEO Turnovers

47 Pages Posted: 11 Dec 2017

See all articles by Al (Aloke) Ghosh

Al (Aloke) Ghosh

City University of New York (CUNY) - Baruch College

Jun Wang

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

Date Written: November 9, 2017

Abstract

We study the effects of accounting losses on CEO turnover. If accounting losses provide incremental information about managerial ability, boards can utilize the information in losses to assess CEO’s stewardship of assets, which is why losses may serve as a heuristic for managerial failure. We find a positive relation between losses and subsequent CEO turnover after controlling for other accounting and stock performance measures. We also find that losses are associated with an increase in board activity and that losses predict poor operating performance and future financial problems. Our results explain why CEOs manage earnings to avoid losses.

Keywords: Accounting losses; CEO turnover

JEL Classification: G30

Suggested Citation

Ghosh, Al (Aloke) and Wang, Jun, Accounting Losses as a Heuristic for Managerial Failure: Evidence from CEO Turnovers (November 9, 2017). Journal of Financial and Quantitative Analysis (JFQA), Forthcoming. Available at SSRN: https://ssrn.com/abstract=3083059

Al (Aloke) Ghosh (Contact Author)

City University of New York (CUNY) - Baruch College ( email )

One Bernard Baruch Way
P.O. Box B12-225
New York, NY 10010
United States
646-312-3184 (Phone)
646-312-3161 (Fax)

Jun Wang

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

Register to save articles to
your library

Register

Paper statistics

Downloads
133
rank
210,710
Abstract Views
710
PlumX Metrics