CEO Turnover and Properties of Accounting Information

Engel, Ellen; Hayes, Rachel M.; Wang, Xue

doi:10.2139/ssrn.368300

Cited by 192 publications

(183 citation statements)

References 39 publications

(60 reference statements)

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“…Lambert and Larcker (1987) and Sloan (1993), among others, provide evidence suggesting that optimal compensation contracts place less reliance on performance measures when they contain considerable noise. Engel et al (2002) make a similar argument concerning the CEO turnover decision. We extend this argument to suggest that the uncertainty associated with earnings forecasts impacts the degree to which boards hold CEOs accountable for firm performance expectations in the CEO turnover decision.…”

Section: One-year Forecast Errors As a Measure Of Ceo Performancementioning

confidence: 88%

The Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions

2003

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Our analysis suggests that boards focus on deviation from expected performance, rather than performance alone, in making the CEO turnover decision, especially when there is agreement (less dispersion) among analysts about the firm's earnings forecast or there are a large number of analysts following the firm. In addition, our results suggest that boards are more likely to appoint a CEO that will change firm policies and strategies (i.e., an outsider) when forecasted 5-year EPS growth is low and there is greater uncertainty (more dispersion) among analysts about the firm's long-term forecasts.

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Section: One-year Forecast Errors As a Measure Of Ceo Performancementioning

confidence: 88%

The Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions

2003

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“…Their analysis therefore suggests a role for accounting information to facilitate the board's learning from price in order to make a more informed turnover decision. 29 In another recent study, Engel, Hayes, and Wang (2003) examine the relationship between the weight placed on accounting and market return information in the CEO turnover decision and the relative sensitivity and precision of these measures. Their tests are motivated by moral hazard models with multiple signals (e.g., Holmstrom, 1979;Banker and Datar, 1989), which stress that the optimal aggregation of signals is in relation to their sensitivity to the agent's action relative to the precision with which the signal captures that action (or the signal-to-noise ratio).…”

Section: Accounting-based Performance Measures In Executive Compensatmentioning

confidence: 99%

The role of information and financial reporting in corporate governance and debt contracting

Armstrong

Guay

Weber³

2010

Journal of Accounting and Economics

1,036

350

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Abstract:We review recent literature on the role of financial reporting transparency in reducing governance-related agency conflicts among managers, directors, and shareholders, as well as in reducing agency conflicts between shareholders and creditors, and offer researchers some suggested avenues for future research. Key themes include the endogenous nature of debt contracts and governance mechanisms with respect to information asymmetry between contracting parties, the heterogeneous nature of the informational demands of contracting parties, and the heterogeneous nature of the resulting governance and debt contracts. We also emphasize the role of a commitment to financial reporting transparency in facilitating informal multi-period contracts among managers, directors, shareholders, and creditors.Keywords: financial accounting; corporate governance; board structure; contracting; executive compensation; debt contracts; informal contracts We thank the following for helpful comments and suggestions:

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“…We use the firm's stock return prior to the announcement of the restatement (month Ϫ12 to Ϫ1) as our measure of prior performance (STKPERF1). We also use the firm's ROA in the year preceding the announcement of the restatement as an additional measure of prior performance, as Engel et al (2003) find that both market-based and accounting-based measures of performance are important in explaining CEO turnover.…”

Section: Logistic Regression Analysismentioning

confidence: 99%

“…The sample and control firms in this study likely face a similar economic environment, given that control firms are selected based on industry, size and age. 12 We do not include a variable for CEO age or an indicator variable for CEOs over the age 64 as in Engel et al (2003) and Murphy and Zimmerman (1993) for two reasons. First, our dependent variable is at the firm level rather than the individual executive level.…”

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confidence: 99%

The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover

2004

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ABSTRACT:In this paper we investigate the reputational penalties to managers of firms announcing earnings restatements. More specifically, we examine management turnover and the subsequent employment of displaced managers at firms announcing earnings restatements during 1997 or 1998. In contrast to prior research (Beneish 1999; Agrawal et al. 1999), which does not find increased turnover following GAAP violations or revelation of corporate fraud, we find that 60 percent of restating firms experience a turnover of at least one top manager within 24 months of the restatement compared to 35 percent among age-, size-, and industry-matched firms. Moreover, the subsequent employment prospects of the displaced managers of restatement firms are poorer than those of the displaced managers of control firms. Our results hold after controlling for firm performance, bankruptcy, and other determinants of management turnover, and suggest that both corporate boards and the external labor market impose significant penalties on managers for violating GAAP. Also, in light of resource constraints at the SEC, our findings are encouraging as they suggest that private penalties for GAAP violations are severe and may serve as partial substitutes for public enforcement of GAAP violations.

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CEO Turnover and Properties of Accounting Information

Cited by 192 publications

References 39 publications

The Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions

The Impact of Firm Performance Expectations on CEO Turnover and Replacement Decisions

The role of information and financial reporting in corporate governance and debt contracting

The Reputational Penalty for Aggressive Accounting: Earnings Restatements and Management Turnover

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