Big Baths Around Turnovers: What Happens if the Former CEO Stays on Board?

Mario Daniele, Prajakta Desai, Claudia Imperatore and Angela Pettinicchio

European Accounting Review, 2024, vol. 33, issue 5, 1639-1666

Abstract: We examine whether retaining the former CEO as a board member has an impact on big bath accounting around CEO turnovers. Early evidence shows that when a CEO turnover occurs, the new CEO uses big bath to shift the responsibility for low earnings toward the previous management. However, the former CEO is often retained. This event may restrict the new CEO’s ability to take a big bath. Using a hand-collected sample of CEO turnover events in US firms, we find that CEO turnover increases the probability of a big bath. However, retaining the CEO acts as a monitoring mechanism by reducing the probability of big baths, especially opportunistic ones. Our findings indicate that CEO retention could be a useful corporate governance mechanism that restricts new CEO’s opportunistic practices.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1080/09638180.2024.2325992 (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:taf:euract:v:33:y:2024:i:5:p:1639-1666

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/REAR20

DOI: 10.1080/09638180.2024.2325992

Access Statistics for this article

European Accounting Review is currently edited by Laurence van Lent

More articles in European Accounting Review from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().