Insider versus outsider CEOs, executive compensation, and accounting manipulation

Prasart Jongjaroenkamol and Volker Laux

Journal of Accounting and Economics, 2017, vol. 63, issue 2, 253-261

Abstract: This paper examines the role of the financial reporting environment in selecting a new CEO from within versus outside the organization. Weak reporting controls allow the CEO to misreport performance information, which reduces the board's ability to detect and replace poorly-performing CEOs as well as aggravates incentive contracting. We show that these adverse effects are stronger when the CEO is an outsider rather than an insider. Our model predicts that boards are more likely to recruit a CEO from the outside when the performance measures with which the new hire is assessed are harder to manipulate.

Keywords: Insider versus outsider CEOs; CEO compensation; CEO turnover; Accounting manipulation (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jaecon:v:63:y:2017:i:2:p:253-261

DOI: 10.1016/j.jacceco.2017.01.002

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