Real Earnings Management Around CEO Turnovers

30 Pages Posted: 6 Oct 2020

See all articles by Paul Geertsema

Paul Geertsema

University of Auckland Business School

David H. Lont

University of Otago - Department of Accountancy and Finance

Helen Lu

University of Auckland Business School; University of Auckland - Department of Accounting and Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2020

Abstract

Following CEO turnovers, US firms adjust real business activities to manage earnings downwards (REM bath). This effect is most pronounced in firms with low levels of institutional ownership. REM baths early in CEOs’ tenure can be confounded with legitimate adjustments to business activities. However, we show that they are not accompanied by increases in R&D or capital expenses, nor are they explained by restructuring expenses. CEOs with short tenure record more negative REM measures in their first year of tenure, when compared with CEOs with long tenure.

Keywords: CEO turnover, Real earnings management, Abnormal operating performance, Discretionary accruals

Suggested Citation

Geertsema, Paul G. and Lont, David H. and Lu, Helen, Real Earnings Management Around CEO Turnovers (September 2020). Accounting & Finance, Vol. 60, Issue 3, pp. 2397-2426, 2020, Available at SSRN: https://ssrn.com/abstract=3704346 or http://dx.doi.org/10.1111/acfi.12434

Paul G. Geertsema (Contact Author)

University of Auckland Business School ( email )

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New Zealand

David H. Lont

University of Otago - Department of Accountancy and Finance ( email )

Box 56
Dunedin, Otago 9054
New Zealand
+64 3 479 8119 (Phone)
+64 3 479 8171 (Fax)

HOME PAGE: http://www.business.otago.ac.nz/acty/

Helen Lu

University of Auckland Business School ( email )

12 Grafton Rd
Private Bag 92019
Auckland, 1010
New Zealand

HOME PAGE: http://www.business.auckland.ac.nz/people/hlu079

University of Auckland - Department of Accounting and Finance ( email )

Private Bag 92019
Auckland 1001
New Zealand

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