Accounting Losses as a Heuristic for Managerial Failure: Evidence from CEO Turnovers

2018 ◽  
Vol 54 (2) ◽  
pp. 877-906 ◽  
Author(s):  
Aloke (Al) Ghosh ◽  
Jun Wang
Keyword(s):  
Performance Measures ◽  
Chief Executive Officer ◽  
Operating Performance ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Positive Relation ◽  
Managerial Ability ◽  
Financial Problems ◽  
Stock Performance ◽  
Incremental Information

We study the effects of accounting losses on chief executive officer (CEO) turnover. If accounting losses provide incremental information about managerial ability, boards can utilize the information in losses to assess CEOs’ 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.

CEOs Under Fire: The Effects of Competition from Inside Directors on Forced CEO Turnover and CEO Compensation

2013 ◽  
Vol 48 (3) ◽  
pp. 669-698 ◽  
Author(s):  
Shawn Mobbs
Keyword(s):  
Chief Executive Officer ◽  
Ceo Compensation ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Stock Performance ◽  
Accounting Performance ◽  
Inside Directors ◽  
Board Monitoring ◽  
Firm Selection ◽  
Selection Of

AbstractThis study examines board monitoring when a credible chief executive officer (CEO) replacement is on the board. Inside directors whose talents are in greater demand externally, as reflected by their holding outside directorships, are more likely to become CEOs, and their presence is associated with greater forced CEO turnover sensitivity to accounting performance and CEO compensation sensitivity to stock performance. These results reveal that certain insiders strengthen board monitoring by serving as a readily available CEO replacement and contradict the presumption that all insiders are under CEO control. Furthermore, the results persist when accounting for the endogenous firm selection of talented inside directors.

Does the Location of Directors Matter? Information Acquisition and Board Decisions

2014 ◽  
Vol 49 (1) ◽  
pp. 131-164 ◽  
Author(s):  
Zinat S. Alam ◽  
Mark A. Chen ◽  
Conrad S. Ciccotello ◽  
Harley E. Ryan
Keyword(s):  
Chief Executive Officer ◽  
Information Acquisition ◽  
Geographic Distance ◽  
Geographic Location ◽  
Chief Executive ◽  
Information Gathering ◽  
Board Structure ◽  
Stock Performance ◽  
Corporate Headquarters ◽  
Using Data

AbstractUsing data on over 4,000 individual residential addresses, we find that geographic distance between directors and corporate headquarters is related to information acquisition and board decisions. The fraction of a board’s unaffiliated directors who live near headquarters is higher when information-gathering needs are greater. When the fraction of unaffiliated directors living near headquarters is lower, nonroutine chief executive officer (CEO) turnover is more sensitive to stock performance. Also, the level, intensity, and sensitivity of CEO equity-based pay increase with board distance. Overall, our results suggest that geographic location is an important dimension of board structure that influences directors’ costs of gathering information.

scholarly journals Reaksi Pasar Terhadap Pengumuman Pergantian CEO di Bursa Efek Indonesia

2018 ◽  
pp. 2430
Author(s):  
I Kadek Diky Agusnawan ◽  
Dewa Gede Wirama
Keyword(s):  
Event Study ◽  
Chief Executive Officer ◽  
Capital Market ◽  
Abnormal Return ◽  
Abnormal Returns ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Company Performance ◽  
Cumulative Abnormal Return ◽  
Event Study Method

Announcement of CEO turnover indicates a change in company management in order to improve company performance. The purpose of this study is to test whether the capital market reacts to CEO turnover announcements. This study uses event study method and the sample was selected purposively. The research sample consisted of 79 companies listed in the IDX. Based on the results of the analysis it is found that there are no abnormal returns around the CEO turnover announcement. The results shows that there is no information content in the CEO turnover announcement. The results of this study is consistent with the research of Warner et al., (1998) and Setiawan (2008). The results of the study is not consistent with the research of Weisbach (1988), Kang and Shivdasani (1996), Derment-Ferere and Renneboog (2000), Bahtera (2017). Keywords: Chief executive officer, cumulative abnormal return, market reaction

scholarly journals SENTIMENT MARKET ANALYSIS ON REPLACEMENT ANNOUNCEMENT OF CHIEF EXECUTIVE OFFICER (CEO)

2019 ◽  
Vol 1 (1) ◽  
pp. 14
Author(s):  
Novyandri Taufik Bahtera
Keyword(s):  
Leadership Style ◽  
Chief Executive Officer ◽  
Market Reaction ◽  
Poor Performance ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Market Analysis ◽  
Test Information ◽  
Two Factors ◽  
High Degree

This study examines the market reaction to the announcement of Chief Executive Officer (CEO) measured by abnormal return. The study sample consisted of 55 CEO turnover announcements using the t-test to test information content of the announcement. The author groups the changes into two factors: (1) change process (routine and non-routine) and (2) substitute origin (inside and outside). The market reacts significantly positively to the announcement of CEO turnover routinely with the origin of the replacement from inside (inside) the company. Different reactions occur in the announcement of routine outside and non-routine insidediary CEO turnover where announcements are responded negatively and significantly. The market does not react to the announcement of non routine outside CEO changes. These results show that investors in Indonesia react positively to routine CEO turnover inside because investors believe that new CEOs will continue their strategy and leadership style and have lower levels of uncertainty. Negative reactions to routine outside CEO turnover are caused by the market belief that the successor will not continue the previous CEO's strategy and has a high degree of uncertainty. The cause of a negative market reaction to the announcement of a non-routine inside CEO turnover is that a replacement CEO will continue the old leadership style and jointly be responsible for the company's poor performance.

scholarly journals Praktik Manajemen Laba dan Reaksi Pasar Setelah Event Pergantian Chief Executive Officer (CEO)

2021 ◽  
Vol 31 (4) ◽  
Author(s):  
Desak Nyoman Sri Juliartini ◽  
Ida Bagus Putra Astika
Keyword(s):  
Earnings Management ◽  
Chief Executive Officer ◽  
Stock Price ◽  
Management Practices ◽  
Market Reaction ◽  
Sampling Technique ◽  
Chief Executive ◽  
Total Sample ◽  
Ceo Turnover ◽  
Analysis Technique

This research is to prove after the change of chief executive officer (CEO) of earnings management practices and market reaction. The total sample taken was using the nonprabability sampling method with a purposive sampling technique of 48 companies on the IDX which included the LQ45 index. The analysis technique used is simple linear regression and paired sample t-test on the DA and PER values of the company. Based on the results of the analysis found that there is no effect of earnings management on market reaction after one and two years of CEO turnover. These results prove that there is no important information on the announcement of CEO turnover, so it is less able to make significant stock price fluctuations. The next result is no difference in both earnings management and market reaction that occurs one and two years after CEO turnover. Keywords: Chief Executive Officer (CEO); Earning Management; Market Reaction; Price Earning Ratio (PER).

The Exploratory Mindset and Corporate Innovation

2020 ◽  
pp. 1-43
Author(s):  
Zhaozhao He ◽  
David Hirshleifer
Keyword(s):  
Research And Development ◽  
Chief Executive Officer ◽  
Stock Prices ◽  
Operating Performance ◽  
Chief Executive ◽  
Market Reactions ◽  
Managerial Incentive ◽  
Corporate Innovation ◽  
Long Run

Abstract We propose that chief executive officer (CEO) exploratory mindset (inherent desire to search for novel ideas and long-term orientation) promotes innovation. Firms with CEOs with PhD degrees (PhD CEOs) produce more exploratory patents with greater novelty, generality, and originality. PhD CEOs engage less in managing earnings and stock prices, invest more in research and development (R&D) and alliances, generate higher long-term value of patents, and experience more positive market reactions to R&D alliances. Their firms achieve superior long-run operating performance. They tend to be hired by research-intensive firms with poor financial performance. Evidence from managerial incentive shocks and turnovers suggests that these effects do not derive solely from CEO–firm matching.

How Does Forced-CEO-Turnover Experience Affect Directors?

2020 ◽  
pp. 1-29 ◽  
Author(s):  
Jesse Ellis ◽  
Lixiong Guo ◽  
Shawn Mobbs
Keyword(s):  
Labor Market ◽  
Chief Executive Officer ◽  
Labor Market Outcomes ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Independent Directors ◽  
Board Meeting ◽  
Market Outcomes ◽  
The Cost ◽  
Underperforming Firms

Abstract We study changes in independent director behavior and labor-market outcomes after the experience of a forced Chief Executive Officer (CEO) turnover. We find that independent directors are more willing to fire CEOs of underperforming firms, hire outside CEOs after a firing, and encourage better board-meeting attendance by fellow directors. We also find that the shareholders of poorly performing firms react positively when experienced directors join the board. It does come with a small cost for directors, in terms of additional directorships, although the cost is not as great as that for directors who do not fire the CEO of a poorly performing firm.

Management Forecast Accuracy and CEO Turnover

2012 ◽  
Vol 87 (6) ◽  
pp. 2095-2122 ◽  
Author(s):  
Sam (Sunghan) Lee ◽  
Steven R. Matsunaga ◽  
Chul W. Park
Keyword(s):  
Firm Performance ◽  
Boards Of Directors ◽  
Forecast Accuracy ◽  
Ceo Turnover ◽  
Forecast Errors ◽  
Positive Relation ◽  
Managerial Ability ◽  
Management Forecast ◽  
Future Events ◽  
The Absolute

ABSTRACT We investigate whether management forecast accuracy provides a signal regarding CEOs' ability to anticipate and respond to future events by examining the relation between management forecast errors and CEO turnover. We find that the probability of CEO turnover is positively related to the magnitude of absolute forecast errors when firm performance is poor and that this positive relation holds for both positive and negative forecast errors. In addition, we find that the positive relation between CEO turnover and the absolute forecast errors is concentrated in the sample of less entrenched CEOs. Our findings indicate that boards of directors use management forecast accuracy as a signal of CEOs' managerial ability and that managers bear a cost for issuing inaccurate forecasts.

scholarly journals Urban Agglomeration and CEO Compensation

2016 ◽  
Vol 51 (6) ◽  
pp. 1925-1953 ◽  
Author(s):  
Bill B. Francis ◽  
Iftekhar Hasan ◽  
Kose John ◽  
Maya Waisman
Keyword(s):  
Human Capital ◽  
Educational Attainment ◽  
Chief Executive Officer ◽  
Ceo Compensation ◽  
Metropolitan Areas ◽  
Chief Executive ◽  
Urban Agglomeration ◽  
Local Network ◽  
Positive Relation

We examine the relation between the agglomeration of firms around big cities and chief executive officer (CEO) compensation. We find a positive relation among the metropolitan size of a firm’s headquarters, the total and equity portion of its CEO’s pay, and the quality of CEO educational attainment. We also find that CEOs gradually increase their human capital in major metropolitan areas and are rewarded for this upon relocation to smaller cities. Taken together, the results suggest that urban agglomeration reflects local network spillovers and faster learning of skilled individuals, for which firms are willing to pay a premium and which are therefore important factors in CEO compensation.

CEO Turnovers and Disruptions in Customer–Supplier Relationships

2017 ◽  
Vol 52 (6) ◽  
pp. 2565-2610 ◽  
Author(s):  
Vincent J. Intintoli ◽  
Matthew Serfling ◽  
Sarah Shaikh
Keyword(s):  
Financial Performance ◽  
Stock Returns ◽  
Chief Executive Officer ◽  
Chief Executive ◽  
Ceo Turnover ◽  
Supplier Relationships ◽  
Abnormal Stock Returns

Events that disrupt customer–supplier relationships pose a source of risk for suppliers that depend on a customer for a large portion of their revenues. We identify the replacement of a customer’s chief executive officer (CEO) as a disruptive event that results in suppliers losing substantial sales. These losses are greater when an incumbent customer CEO is more likely to be entrenched and stem largely from the successor divesting assets. Finally, we document that losses in sales following a customer CEO turnover lead to declines in a supplier’s financial performance and that suppliers experience negative abnormal stock returns to announcements of customer CEO departures.

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