Earnings management surrounding CEO changes

Publisher:
Blackwell Publishing
Publication Type:
Journal Article
Citation:
Accounting and Finance, 2002, 42 (2), pp. 169 - 193
Issue Date:
2002-01
Full metadata record
Files in This Item:
Filename Description Size
Thumbnail2007003695OK.pdf1.41 MB
Adobe PDF
This paper investigates the extent of earnings management in the periods surrounding CEO changes by Australian firms. Evidence is presented of incoming CEOs undertaking earnings management to reduce income in the year of CEO change, with abnormal and extraordinary items being the primary vehicle through which this is achieved. This result is consistent with the notion of new CEOs engaging in an `earnings bath, and is strongest for nonroutine CEO changes, where the opportunities to manage earnings are greatest. Extending prior work, classification of CEO changes as routine or nonroutine is based on an expanded information search, and this provides insights into the CEO change process and identifies problems with simpler mechanistic classification methods. Additionally, detailed information of the operation of the modified Jones model for estimating expected accruals is presented, and this is consistent with such models having low explanatory power in identifying abnormal accruals.
Please use this identifier to cite or link to this item: