Liming Guan
University of Hawaii at Manoa
Shannon L Leikam
Brigham Young University
Charlotte J. Wright
Oklahoma State University
Abstract: This study extends the stream of research examining earnings management in a CEO turnover environment focusing on turnover involving forced CEO dismissals. When discretionary accruals of firms experiencing forced CEO dismissal are compared to a control sample of firms results are significant and indicate CEOs faced with termination engage in earnings management. Since company specific variables have been shown to influence discretionary accruals but are not controlled for in the modified Jones (1991) model, a second analysis is performed where a firm type variable is tested. When the sample includes all firms experiencing CEO turnover the firm-type variable is not significant. However, when the analysis is repeated over the subsample including only those firms experiencing forced CEO dismissal the results indicate that company-specific confounding factors cannot explain away the difference in discretionary accruals of firms experiencing forced CEO terminations and the control firms.
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