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

UNC Charlotte

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)

UNC Charlotte ( email )

9201 University City Blvd
Charlotte, NC 28223
United States

HOME PAGE: http://www.alokeghosh.com

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

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