The relative usefulness of cash flows versus accrual earnings for CEO turnover decisions across countries: The role of investor protection

Jinshuai Hu and Jeong-Bon Kim

Journal of International Accounting, Auditing and Taxation, 2019, vol. 34, issue C, 91-107

Abstract: This study investigates the role of investor protection in determining the relative usefulness of cash flows versus accrual earnings for assessing Chief Executive Officer (CEO) performance and replacing poorly performing CEOs. Using a large sample of listed firms from 41 countries, we find that as the strength of investor protection decreases, the likelihood of CEO turnover becomes more sensitive to cash flow performance but less sensitive to accrual earnings. Further analysis shows that the availability of analysts’ cash flow forecasts enhances the sensitivity of CEO turnover to cash flows, and this sensitivity is more pronounced in countries with weaker investor protection. Collectively, our results suggest that cash flow information plays a more vital role than accrual earnings in facilitating efficient contracting between corporate boards and CEOs in an environment with poor protection of investor rights.

Keywords: Cash flow; Investor protection; Contractual usefulness; CEO turnover; International accounting (search for similar items in EconPapers)
JEL-codes: G14 G15 M41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jiaata:v:34:y:2019:i:c:p:91-107

DOI: 10.1016/j.intaccaudtax.2019.02.005

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